AMD Research & Development Center India Private Limited, Hyderabad V. Asst. Director of Income Tax (International Taxation) - I, Hyderabad

ITA 693/HYD/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 82433 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-10-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 05-01-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 15-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Assessee Lawyers: S RAGHUNATHAN S
• Keywords: Transfer pricing; Business expenditure; Double taxation relief; Opportunity of being heard; Principle of natural justice; Diversion of income; Retrospective amendment; Additional evidence; Permanent establishment; Non-deduction of tax
• Section: 194C; 201(1); 131; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.692/HYD/14 : ASSESSMENT YEAR 2007 - 08 ITA NO.693/HYD/ 14 : ASSESSMENT YEAR 2008 - 09 ITA NO.694/HYD/14 : ASSESSMENT YEAR 2009 - 10 ITA NO.695/HYD/14 : ASSESSMENT YEAR 2010 - 11 M/S. AMD RESEARCH & DEVELOPMENT CENTER INDIA PRIVATE LIMITED, HYDERABAD (PAN - AABCC 3447 R) V/S. DY. COMMISSIONER OF INCOME - TAX, CIRCLE 1(2), HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.RAGHUNATHAN S. RESPONDENT BY : SHRI P.SOMA SEKHAR REDDY DR DATE OF HEARING 09 . 1 0.2014 DATE OF PRONOUNCEMENT 22.10.2014 O R D E R PER P.M.JAGTAP, ACCOUNTANT MEMBER : THESE FOUR APPEALS FILED BY THE ASSESSEE ARE DIRECTED AGAINST A COMMON ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX(APPEALS) V, HYDERABAD DATE D 31.1.2014, WHEREBY HE DISPOSED OFF THE APPEALS FIL E D BY TH E ASSESSEE AGAINST A COMMON ORDER OF THE ASST. COMMISSIONER OF INCOME - TAX (INTERNATIONAL TAXATION) - I, HYDERABAD (ASSESSING OFFICER) , DATED 28.1.2013 PASSED UNDER S.201(1)/S.201(1A) OF THE ACT, TREATING THE ASSESSEE AS IN DEFAULT FOR NON - DEDUCTION OF TAX AT SOURCE FOR THE ASSESSMENT YEARS 2007 - 08 TO 2010 - 11. I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 2 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY, WHICH WAS A SUBSIDIARY OF ATI TECHNOLOGIES, CANADA DURING THE Y E ARS UNDER CONSIDERATION. IT IS BASICALLY SET UP AS A R&D AND DESIGN CENTRE FOR PROVIDING CAPTIVE SERVI C ES TO ITS PARENT COMPANY IN CANADA. TH E SERVICES RENDERED BY IT MAINLY INCLUDE DEVELOPMENT OF SOFTWARE AND HARDWARE SOLUTIONS IN SUPPORT OF HANDHELD AND DIGITAL TV PRODUCTS, GRAPHICS AND CPU AND TESTING AND VALIDATION OF DEVEL OPED SOFTWARE AND HARDWARE AND ASSISTANCE IN DESIGNS, DEVELOPMENT AND SUPPORT FOR THE SOFTWARE AND HARDWARE SOLUTIONS. DURIN G TH E Y E ARS UNDER CON S ID E RATION, THE ASSESSEE HAD MADE THE FOL LOW IN G PAY M EN T S TO I T S PARENT COMPANY, ATI TECHNOLOGIES, CANADA ON ACCOUNT OF SOFTWARE EXPENSE S AND ENGINEERING EXPENSES - FINANCIAL YEAR SOFTWARE EXPENSES ENGINEERING EXPENSES AMOUNT (USD) AMOUNT (INR) AMOUNT (USD AMOUNT (INR) 2006 - 07 13,46,924 6,07,40,520 3,51,910 1,58,81,871 2007 - 08 2 ,01,464 85,70,772 9,66,547 3,86,04,499 2008 - 09 22,70,804 10,76,77,131 2009 - 10 -- 8,79,220 4,33,89,940 TOTAL 15,48,387 6,93,11,291 44,68,481 20,55,53,441 SINCE NO TAX AT SOU R CE WAS DEDUCTED BY TH E ASSESSEE F RO M THE ABOVE REMITTANCES MADE TO ITS PARENT COMPANY ABROAD, AS R E QUIRED BY THE P R OVIS I ONS OF S.195 OF THE INCOME TAX ACT, 1961, THE ASSESSEE WAS CALLE D UP O N BY THE ASSESSING OFFICER TO EXPLAIN WHY IT SHOULD NO T B E TREATED AS AN ASSESSEE IN DEFAULT FOR ITS FAILURE TO DO SO. 3. IN REPLY, IT WAS SUBMITTED BY TH E ASSESSEE THAT THE AMOUNT ON ACCOUNT OF ENGINEERING EXPENSE S WAS PAID BY IT TO ATI TECHNOLOGIES, CANADA FOR THE ENGINEERING SERVI C ES, WHICH WERE I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 3 ACTUALLY R ECEIVED FROM M/S. SO C TRONI C S INDIA PRIV ATE LIMI T ED, HYDERABAD. I T WAS CONTENDED THAT PAYMENT FOR THE SAID SERVI C ES AVAILED BY TH E ASSESSEE WAS INITIALLY MADE BY ATI TECHNOLOGIES, CANADA TO SOCTRONICS INDIA PRIVATE LIMITED AND THE SAME WAS SUBSEQUENTLY REIMBURSED BY THE ASSESSEE COMPANY TO ATI TECHNOLOGIES, CANADA . IT WAS CONTENDED THAT THE PAYMENT MADE BY TH E ASSESSEE COMPANY TO ATI TECHNOLOGIES, CANADA TOWARDS ENGINEERING SERVI C ES THUS WAS NOTHING BUT REI M BURSEM E NT OF EXPENSES INCURRED BY ATI TECHNOLOGIES, CANADA ON BEHALF OF THE ASSESSEE CO MPANY AND THE RE BEING NO ELEMENT OF PROFIT INVOL V ED IN THE SAID PAYMENT, TH E RE WAS NO REQUIREMENT OF DEDUCTION OF TAX AT SOU R CE. 4. TH E ABOVE CONTENTION OF THE ASSESSEE WAS NO T FOUN D ACCEPTABL E BY THE ASSESSING OFFICER IN TH E ABSENCE OF ANY AGREEMENT BETWEEN THE ASSESSEE AND THE ATI TECHNOLOGIES, CANADA OR BETWEEN THE ASSESSEE AND SOCTRONICS INDIA PRIVATE LIMITED PRODUCED FOR HIS VERIFICATION. THE ONLY EVIDENCE PRODUCED BY TH E ASSESSEE IN THE FORM OF INVOICES RAISED BY ITS PARENT COMPANY ATI TECHNOLO GIES, CANADA WAS NOT FOUND TO BE SUFFICIENT BY THE ASSESSING OFFICER TO SU PPORT THE CLAIM OF THE ASSESSEE . HE ALSO RECORDED THE STATEMENT OF THE CH A RTERED ACCOUN T ANT WHO HAD ISSUED CERTIFICATES IN FORM NOS.15CA/15CB FOR NO TDS FROM THE REMITTANCES OF R EIMBURSEMENT BY THE ASSESSEE TO ATI TECHNOLOGIES, CANADA AND INFERRED FROM THE SAID STATEMENT THAT THE CERTIFICATES WERE ISSUED BY THE SAID CH A RTERED ACCOUN T ANT ON THE BASIS OF ORAL EXPLANATION GIVEN BY THE OFFICERS OF THE ASSESSEE COMPANY WITHOUT ANY SPEC IFIC ANALYSIS OR VERIFICATION. HE ALSO RECORD E D THE STATEMENTS OF THE DIRECTORS OF SOCTRONICS TECHNOLOGIES P . L TD. AND INFERRED FROM THE SAID STATEMENTS THAT THE SAID COMPANY W AS ACTUALLY WORKING FOR THE ATI TECHNOLOGIES, CANADA AS AN I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 4 INDEPENDENT SERVICE P ROVIDER. HE ALSO INFERRED THAT ALL THE TECHNICAL DELIVERABLES /OUTPUTS/SER V I C ES PROVIDED BY SOCTRONICS INDIA PRIVATE LIMITED WERE MADE AVAILABLE IN THE REPOSITORY OF THE RE CIPIENT, ATI TECHNOLOGIES, CANADA TO ENABLE THEM TO USE THE SAME ON THEIR OWN. HE THEREFORE , HELD THAT THE CLAIM O F TH E ASSESSEE OF HAVING REMITTED THE AMOUNT ON AC C OUNT OF ENGINEERING EXPENSES TO ATI TECHNOLOGIES, CANADA AS REIMBU R SEMENT OF EXPEN S ES ACTUALLY INCURRED BY THE ASSESSEE COMPANY ON ITS BEHALF WAS UNTE N A B LE. HE ALSO NOTED T H A T THE SO - CALLED REIM B U R SEMENT HAD ACTUALLY HAPPENED AT A MUCH LATER POINT IN TIME THAN THE CORRE S POND ING DATES OF THE IN V OI C ES OF REND E RING OF SERVICES BY SOCTRONICS INDIA PRIVATE LIMITED. HE FURTHER NOTED THAT THE ASSESSEE DID NO T HAVE SEPARATE ACCOUN T H E AD FOR REIM B U RS EMENT TO ITS PARENT COMPANY AND ALL THESE REIMBURSEMENT EXPENSES WE RE CLAIMED UNDER VARIOUS H E ADS OF EXPENS E S LIKE CONSULTANCY AND CONTRACTUAL CH A RGES O R DELIVERABLE / CONSULTANC Y S E RVI C E , SOFTWARE LICENCE/IT SERVICES COUPONS , AD MINIS TRATIVE EXPENSES ETC. ACROSS THE VARIOUS Y E ARS. THE ASSESSING OFFICER ALSO FOUND FROM THE IN F ORMATION PROVIDED BY THE D IRECTOR S OF SOCTRONICS INDIA PRIVATE LIMITED THAT THE PAYM E N T S RECEIVED BY THE SAID CONCERN FROM ATI TECHNOLOGIES, CANADA WE RE RECORDED AS EXPORT SALES DURIN G THE YEARS UNDER CONSIDERATION. 5. AS REGARDS THE PAYMENTS MADE TO ATI TECHNOLOGIES, CANADA ON ACCOUNT OF SOFTWARE EXPENSE, IT WAS EXPLAINED ON BEHALF O F TH E ASSESSEE COMPANY BEFORE THE ASSESSING OFFICER THAT ATI TECH NOLOGIES, CANADA DURING THE YEARS UNDER CONSI DE RATION H A D PURCHASED CERTAIN SOFTWARE APPLI C ATION S FROM FOREIGN VENDORS IN ITS NAME AND THE SAID SOFTWARE APPLI C ATION S WERE INSTALLED ON THE S ERV ER S OUTSIDE INDIA FOR USE OF THE GROUP ENTITIES INCLUDING THE A SSESSEE COMPANY. IT WAS SUBMITTED T HAT THE COST INCURRED FOR PURCHASING THE SAID SOFTWARE WAS CROSS - CHARGED BY ATI I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 5 TECHNOLOGIES, CANADA TO THE GROUP ENTITIES INCLUDING THE ASSESSEE COMPANY FOR USAGE OF SUCH SOFTWARE APPLICATIONS. IT WAS CONTENDED THAT TH E SOFTWARE EXPENSE ACTUALLY INCURRED BY THE ATI TECHNOLOGIES, CANADA THUS, WERE ALLOCATED TO GROUP ENTITIES INCLU D IN G THE ASSESSEE COMPANY AT COST AND SIN C E THERE WAS NO PROFIT ELEMENT EMBEDDED IN IT, IT WAS A CASE OF REIMBU RS EMENT OF ACTUAL EXPENSE INCURR ED WHICH DID NOT ATTRACT TDS PROVISION S . AS AN ALTERNATIVE CONTENTION, I T WAS ALSO SUBMI T TED BY TH E ASSESSEE COMPANY THAT IT WAS GRANTED MERELY THE USER RIGHT BY ATI TECHNOLOGIES, CANADA IN THE COPY - RIGHTED SOFTWARE APPLICATION AND SIN C E THERE WAS NO RIG HT TO U S E THE COPY RIGHT, THE AMOUNT PAID TOWAR D S SOFTWARE EXPENSES WAS NO T IN THE NATURE OF ROYALTY AS PER ARTICLE 12(3) OF INDIA CANADA DTAA, WHICH I S LIABLE TO TAX IN I NDIA IN THE HANDS O F THE ATI TECHNOLOGIES, CANADA. IT WAS CONTENDED THAT THERE WAS T HUS NO OBLIGATION TO DEDUCT TAX AT SOU R CE F R OM TH E SAID PAYM E N T EVEN ON THIS GROUND. 6. TH E EXPLANATION OF TH E ASSESSEE ON THE ISSUE OF PAYMENT OF SOFTWARE EXPENSES WAS NO T FOUND ACCEPTABLE BY THE ASSESSING OFFICER. AC C OR D ING TO HIM, TH E RE WAS NO EVIDEN CE PROVIDED BY TH E ASSESSEE AS TO WHAT WERE THE LICENCE S THAT WERE PROVIDED TO I T BY THE PARENT COMPANY, HOW ARE TH O SE LIC E N C E S USED BY TH E ASSESSEE CO M PANY AND WHAT WERE THE MATRIX THAT WERE USED TO MEASURE THE COST THAT HAS TO BE SHARED BY THE ASSESSE E COMPANY. IN THE AB S EN C E OF ALL TH E SE DETAIL S AS WELL AS SUP PO RTING DOCUMENTARY EV I DENCE, THE ASSESSING OFFICER DOUB T ED THE VERY GENUINENESS OF THE SOFTWARE EXPENSES CLAIM E D TO BE P A ID BY TH E ASSESSEE TO THE ATI TECHNOLOGIES, CANADA. ACCO RD INGLY, AFTER A NLALYSIN G ALL THE FACTS OF TH E CASE, V A RIOU S E VIDENCES, ENQUIRIES AND INVESTIGATION S CONDUCTED BY HIM, THE ASSESSING OFFICER FINALLY RECORDED HIS ADVERSE FIN D IN G S IN RE L ATION TO THE ASSESSEE S CLAIM O F I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 6 HAVING REMITTED THE AMOUNT IN QUESTION TO ATI TECHNO LOGIES, CANADA TOWARDS REIMBU R SEMENT OF ENGINEERING EXPENSES AND SOFTWARE EXPENSES AS UNDER - (A) THERE ARE NO AGREEM E NTS OR ANY OTHER DOCUMENTARY EVIDEN C ES LIKE STATEMENTS OF WORK ISSUED BY THE ASSESSEE TO M /S. SOCTRONICS, TO SHO W AS TO HOW THE SERVI C E S OF M /S. SOCTRONICS WERE RECEI V ED, UTILIZED WHOLLY AND SOLELY BY TH E ASSESSEE, P R ICED DELIVERED TO THE CLAIMED RE C IPIENT I.E., THE ASSESSEE M/S. AMD R&D INDIA (P)LTD. (B) THER E WAS NO PROOF PROVIDED BY TH E ASSESSEE TO ESTABLISH THAT THE SER V ICES WER E REN DERED BY M/S. SOCTRONICS TO THE INDIAN ENTITY, THE ASSESSEE M/S. AMD R&D INDIA (P)LTD. ONLY. I T IS NOT POSSIBLE ALSO, SIN C E THE SERVICE PROVIDER M/S. SOCTRONCIS ITSELF HAS CLAIMED THE SER V I C ES AS EXPO R T TO M/S. ATI TECHNOLOGIES INC. CANADA. TH E REFORE, TH E CLAIM O F TH E ASSESSEE IS BASELESS, FACTUALLY IN C ORRECT AND UNTENABLE FOR THE PU R PO S ES OF I T ACT, 1961. (C) AS SEEN FROM THE LEDGER COPIES PRODUCED DURIN G TH E COU R SE OF PROCEEDINGS U/S. 201(1) OF THE AC T IT I S NO T ICED THAT THE ENTIRE REIMBU R SEM E N T WA S MADE DURING TH E FINA N CIAL YEARS 2009 - 10 & 2010 - 11 THOUGH THE EXPENDITURE WAS INCURRED DURING THE FINANCIAL Y E ARS 2006 - 07 TO 20011 - 12. (D) FURTH E R, I T IS ALSO NO T I C ED THAT ASSESSEE DOES NO T HAVE ANY AGREEMENT WITH M/S. SCOTRONICS FOR THE WORK DONE DURIN G TH E FINANCIAL YEARS 2006 - 07 TO 2008 - 09. IT IS ALSO NOTICED FORM THE LEDGER EXTRACTS OF M/S. SOCTRONICS PRO V IDED DURING TH E COU R SE OF P R O C EEDIN G S U/S. 13 1 OF THE I.T. ACT, 1961, IT I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 7 HAS BOOK E D THE INCOME TO W AR D S SOFTWARE SALES TO ABROAD DURING FINANCIAL Y EARS 2006 - 07 TO 2008 - 09. HO W E VE R, DURING THE FINANCI A L YEARS 2009 - 10 TO 2011 - 12 PAYM E N T S RECEIVED F R OM TH E ASSESSEE I.E., M/S. AMD INDIA R&D LTD., HAVE B E EN BOOKED TOWARDS DOMESTIC SALES O F SOFTWARE. (E) AS SEEN FROM THE STATEMENTS OF THE DIRECTOR, FI N A N C E CONTROLLER O F TH E SER V I C E PRO V I D ER, M/S. SOCTRONICS, IT IS ABSOLU T ELY CLEAR THAT THE ASSESSEE HAS NEVER RECEIVED ANY S E RVI C ES F R OM M/S. SOCTRONICS IN TH E FINANCIAL YEAR 2006 - 09, INSTEAD IT WAS ASSESSEE S PARENT I.E., M/S. ATI TECHNOLOGIES, WHICH HAS RECEIVED TH E SER V I C ES. (F) AS CAN BE SEEN FROM THE STATEMENTS OF THE CAS ALSO, I T IS ABUNDANTLY CL E AR THAT THEY HAVE NO T BEEN PROVIDED WITH ALL THE RELEVANT INFORMATION AND ACCOR D INGLY THEY ALLOWED THE REMITTANCE TO HAPPEN WITHOUT DEDUCTING ANY TA X ES UNDE R SECTION 195 OF THE IT ACT, 1961. (G) THEREFORE, THE ACTUAL NATURE OF TRANSACTIONS CAN BE UN D ERSTOOD AS AN UNSU B STANTIATE D AND UNACCEPTABLE CROSS CHARGE OF EXPENSES INCURRED BY THE PARENT OF THE ASSESSEE M/S. ATI TECHNOLOGIES INC, CANADA ON TO ITS SUBSID IARY IN INDIA, THE ASSESSEE, M/.S AMD R&D CENTER, INDIA (P)LTD. FOR THE SUBCONTRACTING EXPENSES OF THE SOFTWARE SERVICES RECEIVED FROM M/S. SOCTRONICS INCURRED BY M/S. ATI TECHNOLOGIES INC. CANADA. THE PROVISION OF SERVICES BY M/S. SOCTRONICS AND THE SO - CA LLED REIMBURSEMENTS BY THE ASSESSEE ARE TOTALLY UNRELATED SINCE THE REAL BENEFICIARY OF THE SERVICES BY M/S. SOCTRONICS IS M/S. ATI CANADA ONLY. I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 8 (H) THUS THESE EXPENSES BY M/S. AMD R&D (P) LTD., ARE THE EXPENSES NOT FOR THE PURPOSE OF BUSINESS, AS LAID OU T IN THE SCOPE OF SECTION 37 OF THE IT ACT, 1961 AND ACCORDINGLY THE PAYMENTS IN THE GUISE OF REIMBURSEMENT ARE NOT TO MAKE GOOD ANY BUSINESS EXPENSES OF THE ASSESSEE, THAT ARE ORIGINALLY PAID BY ITS PARENT, INSTEAD THEY ARE FRESH INCOME/CASH TO M/S ATI TE CHNOLOGIES, CANADA WHICH OUGHT TO HAVE BEEN SUBJECTED TO TAX UNDER SECTION 195 OF THE IT ACT, 1961. 7. ON THE BASIS OF THE ABOVE FIN D IN G S, THE ASSESSING OFFICER CAME TO THE CONCLUSION TH A T THE REMITTANCES MADE BY TH E ASSESSEE TO ATI TECHNOLOGIES, CAN ADA IN TH E GUISE O F REIMBURSEMENT OF ENGINEERING AND SOFTWARE EXPENSE ACTUALLY REPR E SENTED FRESH CASH/INCOME PAID TO THE SAID NON - RESIDENT C OMPANY AND TH E S AME, THEREFORE, THE AMOUNT SO REMITTED WAS C HARGEABLE TO TAX IN THE HANDS O F THE ATI TECHNOLOGIES, C ANADA IN INDIA UNDER THE H E AD INCOM E FROM OTHER SOU R CES AS PER INCOME TAX ACT,1961 . FOR THIS CONCLUSION, HE ALSO RELIED ON ARTICLE 21(3) OF INDIA CANADA DTAA, WHICH PROVIDES THAT THE INCOME ARISING TO THE NON - RESIDEN T S IN INDIA FROM OTHER SOURCES SHALL BE TA XA BLE IN INDIA. 8. THE ASSESSING OFFICER A CCO RD IN G LY H E L D THAT THE REMITTANCE MADE BY TH E ASSESSEE TO ATI TECHNOLOGIES, CANADA CONSTITUTING INCOME F R OM OTHER SOURCES W AS CHARGEABL E TO TAX IN THE HANDS O F THE SAID FOREIGN COMPANY AT THE RATE OF 40% WITH SURCHARGE AND EDU C ATION CESS AS APPLICABLE AND THE ASSESSEE WAS LIABLE TO BE TR E ATED AS IN DEFAULT TO THE E X TENT OF SUCH TAX LIABILITY U N DER S. 201 ( 1 ) OF THE ACT, HAVING FAIL E D TO DEDUCT TAX AT SOU R CE AS PER THE P R O V I SI ON S OF S.195 OF THE AC T. HE ACCO RD IN G LY QUANTIF I ED THE AMOUNT P A YABLE BY THE ASSESSEE UNDER S.201(1) AS UNDER - I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 9 FINANCIAL YEAR SOFTWARE EXPENSES ENGINEERING EXPENSES PROPOSED TOTAL TAX PAYABLE BY M/S. AMD R&D (P) LIMITED, HYDERABAD AMOUNT (USD) AMOUNT (INR) AMOUNT (USD) AMOUNT (INR) TAX AMOUNT U/S. 201(1) OF IT ACT, 1961 (INR) 2006 - 07 13,46,924 6,07,40,520 3,51,910 1,58,81,871 3,23,57,638 2007 - 08 2,01,464 85,70,772 9,66,547 3,86,04,499 1,99,22,117 2008 - 09 22,70,804 10,76,77,131 4,54,72,052 2009 - 10 -- 8,79,220 4,33,89,940 1,83,23,572 TOTAL 15,48,387 6,93,11,291 44,68,481 20,55,53,441 11,60,75,379 9. BEFORE TR E ATING THE ASSESSEE COMPANY AS AN ASSESSEE IN DEFAULT UN D ER S .201(1) FOR ITS FAILURE TO DEDUCT TAX AT SOURCE FROM TH E PAYMENT S MADE TO THE PARENT COMPANY ATI TECHNOLOGIES, CANADA AS ABOVE, ONE FINAL OPPORTUNITY WAS GIV E N BY TH E ASSESSING OFFICER TO THE ASSESSEE TO O F FER I T S EXPLANATION IN THE MATTER. AVAILING TH E SAID OPPORTUNITY, IT WAS POIN T ED OUT BY TH E ASSESSEE THAT THE REIMBURSEMENT OF SOFTWARE AND ENGINEERING EXPENSES WAS RE CORDED I N ITS BOOKS O F ACCOUNT AT COST ON ACCRUAL BASIS, AS PER THE DEBIT I N V O IC ES RECEIVED FROM TH E ATI TECHNOLOGIES, CANADA , AND THE SAME WAS SUBSEQUENTLY RECOVERED WITH MARK UP FROM ATI TECHNOLOGIES, CANADA BY RAI S IN G THE SERVICE INVOICES. IT WAS CONTENDED THAT TH E ATI TECHNOLOGIES, CANADA THUS, DID NO T DERIVE ANY BENEFIT F R OM TH E SE TRAN S ACTION S AS ALLEGED BY TH E ASSESSING OFFICER , AND IT WAS NO T A CA SE OF DIVERSION OR TRANSFER OF PROFIT BY TH E ASSESSEE COMPANY TO ATI TECHNOLOGIES, CANADA. THE ASSESSEE COMPANY ALSO SOU G HT AN OP P OR T UNITY TO CROSS EXAMINE THE O F FICERS OF SOCTRONICS TECHNOLOGIES P. LTD. AS WELL AS CHARTERED ACCOUNTANT , WHOSE STATEMENTS RECORDED BY TH E ASSESSING OFFICER WERE RELIED UPON TO DRAW AN A D VERSE INFERENCE AGAINST IT. ACCO RD INGLY, SUCH OPPOR T UNI T Y WAS PROVIDED BY THE ASSESSING OFFICER TO THE ASSESSEE AND THE SWORN STATEMENT OF THE WITNESSES W E RE I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 10 R E CORDED DURIN G THE CROSS EXAMINATION. ALTHOUGH THE ASSESSEE COMPANY MADE AN ATTEMPT TO SUPPORT ITS CASE OF HAVING REMITTED THE AMOUNT S ON ACCOUNT OF ENGINEERING EXPENSES TO ATI TECHNOLOGIES, CANADA ONLY TOWARDS REIMBU R SEMENT O F THE AMO U N T S PAID BY THE SAID COMPANY TO S OCTRONICS TECHNOLOGIES P. LTD. FOR THE SERVICES ACTUALLY AVAILED BY TH E ASSESSEE COMPANY ON THE BASIS OF THE CROSS - EXAMINATION OF THE CONCERNED WITNESSES, THE ASSESSING OFFICER DID NO T F I ND THE SAME TO B E ACCEPTABLE. ACCORDIN G TO HIM, THE STATEMENTS REC ORDED DURING THE COURSE OF CROSS - EXAMINATION FAILED TO BRING OUT A N Y CONTRADICTION IN THE STATEMENTS RECORDED EARLIER AND THERE WAS NOTHING BROUGHT OUT IN THE SAID C R OSS EXAMINATION TO SHOW THAT THE REAL BENEFICIARY OF THE SERVICES RENDERED BY SOCTRONIC S TECHNOLOGIES P. LTD. WAS ACTUALLY TH E ASSESSEE COMPANY AND NOT THE ATI TECHNOLOGIES, CANADA . HE HELD THAT THE SER V ICES RENDERED BY SOCTRONICS TECHNOLOGIES P. LTD. AS MAIN CONTRACTOR WERE FOR THE BENEFIT OF ATI TECHNOLOGIES, CANADA ALON E AND EVEN THE AC CESS CREDENTIAL , SUCH AS LOG - IN - ID AND PASS - WORD TO THE REPOSITOR Y IN WHICH THE DELIVERABLES WERE PROVIDED BY SOCTRONICS TECHNOLOGIES P. LTD. WERE PROVIDED ONLY TO ATI TECHNOLOGIES, CANADA . 10. BEFORE THE ASSESSING OFFICER, AN ORDER OF COMMISSIONER O F SERVICE TAX, HYDERABAD WAS ALSO FILED BY THE ASSESSEE, WHEREIN IT WAS HELD TH A T TECHNICAL SERVICES WERE AVAILED BY THE ASSESSEE COMPANY FROM ATI TECHNOLOGIES, CANADA THROUGH SOCTRONICS TECHNOLOGIES P. LTD. THE SAID ORDER P AS SED BY THE COMMISSIONER OF SERVICE TAX WAS RELIED UPON BY THE ASSESSEE IN SUPPORT OF ITS STAND THAT THE SER V ICES RENDERED B Y SOCTRONICS TECHNOLOGIES P. LTD. WERE AVAILED BY IT THROUGH ATI TECHNOLOGIES, CANADA , AND THE AMOUNT IN QUESTION WAS REMITTED TO ATI TECHNOLOGIES, CANADA TOW A R DS REIMBURSEMENT OF THE PAYMENT MADE BY THE SAID COMPANY TO I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 11 SOCTRONICS TECHNOLOGIES P. LTD. ON BEHALF OF THE ASSESSEE COMPANY. THE ASSESSING OFFICER , H OW E VER , NOTED THAT THE ORDER OF THE COMMISSIONER OF SERVICE TAX WAS PASSED ON 23.7.2012, WHEREAS ALL TH E INV E STIGATIONS MADE BY HIM THEREAFTER HAD CLE A RLY REVEALED THAT THE REAL BENEFICIAR Y OF THE SER V ICES REND E RED BY SOCTRONICS TECHNOLOGIES P. LTD. WAS ATI TECHNOLOGIES, CANADA AND NOT THE ASSESSEE COMPANY. TH E ASSESSING OFFICER ALSO HELD THAT THE ORDER O F THE COMMISSIONER OF SERVICE TAX , IN A N Y CASE , DID NO T PROVIDE ANY EVIDENCE TO REACH THE CONCLUSION THAT THE SERVICES PROVIDED BY SOCTRONICS TECHNOLOGIES P. LTD. WERE FOR THE BENEFIT OF THE ASSESSEE COMPANY ALONE. ACCORDING TO HIM, IF ONE WERE TO GO BY THE ORDER OF THE COMMISSIONER OF SERVICE TAX, THE PAYMENT/REIMBURSEMENT MADE BY THE ASSESSEE COMPANY TO ATI TECHNOLOGIES, CANADA CLEARLY REPRESENTED FEE FOR TECHNICAL SER V ICES AND THE SAME WERE LIABL E FOR TAX IN INDIA IN THE HANDS OF THE ATI TECHNOLOGIE S, CANADA AS FEES FOR INCLUDED SER V ICES AS PER INDIA CANADA DTAA . HE ALSO OBSER V ED THAT THE ORDER OF THE COMMISSIONER OF SERVICE TAX PASSED ON 23.7.2012 WAS DELIBERATELY PRO DUCED BY THE ASSESSEE ONLY ON 31.12.2012, BY WHICH TIME STRONG EVIDENCE WAS COLLE CTED WHICH PROV ED BEYOND DOUBT THAT THE SERVICES OF SOCTRONICS TECHNOLOGIES P. LTD. WERE FOR THE BENEFIT OF ATI TECHNOLOGIES, CANADA AND TH E R E FORE, REIMBURSEMENT CLAIMED BY THE ASSESSEE W AS NOTHING BUT IN THE NATURE OF FRESH INCOME O R CASH IN THE HANDS O F THE ATI TECHNOLOGIES, CANADA . 11. BEFORE THE ASSESSING OFFICER, AN ALTERNATIVE CONTENTION WAS RAISED BY THE ASSESSEE WITHOUT PREJU D I C E TO ITS EARLIER SUBMISSIONS THAT THE AMOUNT IN QUESTION PAID TO ATI TECHNOLOGIES, CANADA MAY BE TR E ATED AS DIVIDEND. T HIS ALTERNATIVE CONTENTION OF THE ASSESSEE WAS ALSO NO T FOUND ACCEPTABLE BY THE ASSESSING OFFICER IN THE ABSENCE OF ANY A PPROVAL GIVEN EITHER BY ITS BOA R D OF DI R ECTORS I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 12 OR EVEN BY THE RES ERVE BANK OF INDIA TO DISTRIBUTE OR PAY ANY DIVIDEND TO THE NON - RESI D ENT SHARE - HOL D ER S . HE HELD HAT THIS ALTE R NA T IVE CONTENTION O F TH E ASSESSEE THUS WAS NOTHING BUT A PLOY BY T HE ASSESSEE TO SEEK RELIEF UNDER RELEVANT ARTICLE OF THE DTAA THAT IMPOSED A LOWER TAX LIABILITY ON DIVIDEND INCOME IN THE HANDS OF THE FOREIGN COMP ANY. 12. THE ASSESSING OFFICER THUS DID NO T ACCEPT ANY O F TH E C ON T ENTION S RAISED BY THE ASSESSEE COMPANY AND REJ E CTING THE SAME, HE SUMMARIZED HIS CONCLUSIONS ON ALL THE RELE V ANT ASPECTS O F THE ISSUE OF THE TAXABILITY O F THE AMOUNT IN QUESTION REMITTE D BY THE ASSESSEE COMPANY TO ATI TECHNOLOGIES, CANADA AS UNDER - CONCLUSION: ( A ) IT IS NO T EWORTHY THAT THE PL A CE O F RENDERING THE SERVICE IS IMMATERIAL, FOR E A S E OF COMMU NIC ATION, COLLABORATION, IF THE ENGINEERS OF M/S. SCOTRONCIS PERFORM THEIR CONTRACTUAL O BLIGATION IN THE PREMISES OF AMD INDIA, UNDER THE SUPERVISION OF THEIR MANAGER, IT DOES NO T MEAN THAT THE ENTIRE WORK IS B E IN G DON E WHOLLY AND SOLELY FOR THE BENEFIT OF M/S. AMD INDIA(ASSESSEE) ALONE. ( B ) IT IS ALSO NO T THE CA S E THAT, AMD INDIA HAS PROVIDED A NY EVIDENCE THAT ALL THE MANPOWER EMPLOYED BY M/S. SOCTRONICS FOR EXECUTING TH E CON T R A CT WITH ATI CANADA, WAS ONLY FOR THE SUPPORT SERVICES TO AMD INDIA. IT HAS BEEN STATED THAT BOTH THE OFFICIALS OF SOCTRONCIS THAT THE ENGINEERS OF SOCTRONICS INTERACT WITH GLOBAL TEAMS AND EVEN VISITED THE PREMISES OF ATI TECHNOLOGIES, CANADA. ( C ) THUS, I T I S A CLEAR CASE OF COLLABORATION AND NO T ONE OF CAPTIVE SER V I C E C ONSUMPTION. THU S THE REAL BENEFICIARY OF TH E SERVI C ES PROVIDED BY M /S. SCOTRONICS IS M/S.ATI CAN A DA ONLY . ( D ) IT I S ALSO SEEN THAT, IN THIS CA S E, IN VIOLATION TO THE NORMAL PRACTICE OF THE SOFTWARE INDUSTRY, THERE ARE NO STATEMENTS OF WORK THAT HAVE BEEN ISSUED BY THE ASSESSEE COMPANY. IN FACT, THE I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 13 STATEMENTS OF WORK, AS LAID OUT IN THE CONTRACT BETWEEN M/S. A TI CAN A DA AND MS. SOCTRONICS HAVE ORIGINATED FROM M/S. ATI CAN A DA ONLY (EXHIBITS 7 TO 10) ( E ) IT IS ALSO NOTE WORTHY THAT THE ASSESSEE HAS NOT PROVIDED ANY POSITIVE EVIDENCE TO SHOW THAT EVERY PAYMENT BY M/S. ATI CAN A DA TO M/S. SOCTRONICS WAS PRECEDED BY ANY VERIFICATION, APPROVAL FROM THE ASSESSEES MANAGEMENT, NEITHER HAVE THE PAYMENTS BEEN ROUTED THROUGH THE BANK OF TH E ASSESSEE. SINCE THIS KIND OF PRACTICE DOES NO T OBTAIN IN AN ARMS/LENGTH BUSINESS SITUATION, IT IS IMPOSSIBLE TO ACCEPT THE CLAIM OF THE A SSESSEE THAT THE PARENT COMPANY H A D MADE I T S PAYMENTS TO M/S. SOCTRONCIS WHICH ARE TO ACCEPTED BY M/S. AMD R &D INDIA, WITHOUT ANY NEGOTIATION/ VERI - FICATION WHEN I T IS M/S. AMD R &D INDIA, WHICH IS AS CLAIMED, TH E ACTUAL RECIPIENT OF SERVICES FORM M/S. SOCT RONICS. IT I S ALSO NO T EWOR T HY THAT, IT IS NO T THE CA S E THAT THE ASSESSEE IS NO T CAPABLE OF ENTERING INTO ANY OF ITS CONTRACTS ON ITS OWN, AS IT HAS BEEN EVIDENCED IN A SEPARATE AGREEMENT WITH M/S. SCOTRONCIS ITSELF, FROM THE AY 2009 ONWARDS. MO R EOVER, IT IS NOT THE CA S E THAT M/S.SCOTRON I CS IS A SERVI C E PROVIDER TO M /S. ATI CAN A DA AND MANY OTHER SUBSIDIARIES OF M /S. ATI CAN A DA, WHICH CAN B E A B A SIS FOR M/S. AT I CAN A DA TO ENTER INTO A COMMON AGRE E MENT ON THE BEHALF O F ALL OF I T S SUBSIDIARIES. IN ANY CA S E T HE PARENT COMPANY ITSELF WILL ALSO BE A SERVICE RECIPIENT IN SUCH ARRANGEMENTS. IT IS ONLY I N SUCH A SCENARIO THAT THE PARENT USUALLY ENTERS INTO AN AGREEMENT WITH A VENDOR, FOR ITSELF AND ON BEHALF OF I T S MULTIPLE SUBSIDIARIES TO ENSURE BETTER PAYMENT TE RMS. ( F ) THUS, THE CLAMS O F TH E ASSESSEE ARE TOTALLY AGAINST THE PRACTICES OF THE INFORMATION TECHNOLOGY/ SEMI - CONDUCTOR/SOFTWARE IN D U S TRY, WHERE IT IS BEIN G CL A IM E D BY THE ASSESSEE T HA T ALTHOUGH THE PARENT HAS ENTERED INTO A CONTRACT AND INVOICES HAVE BEEN RAISED ON ITS NAME, THE WHOLE AND SOL E REAL BENEFICIARY IS THE ASSESSEE. ( G ) ON THE PRUDENCE AND PU R PO S E O F THIS ARRANGEMENT, IT SUFFICES TO SAY THAT, IN THE ABSENCE OF THE ACCOUNTS OF M/S. ATI CAN A DA DULY AUDITED BY THE CANADIAN REVENUE AUTHORITIES, I T IS DI FFICULT TO CONCLUDE WHETHER THERE HAS BEEN A DOUB L E DEBIT OF EXPENSE, ONE ON ACCOUNT OF THE I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 14 PA Y M E N T S MADE BY IT TO M/S. SOCTRONCIS AGAINST T H E INVOICES RAISED ON IT, AND ANOTHER ON THE PAYMENT MADE TO THE ASSESSEE ALOGNWITH A MARK UP ON THE SO - CALLED REI M B U RS EMENT. MOREOVER IT IS NOTEWORTHY THAT THE PAYM E N T S TO M/S. SCOTRONCIS H A VE ALSO NO T BEEN SUBJECTED TO ANY TDS U/S. 194C BY VIRTUE OF THIS ARRANGEMENT. ( H ) AS REGARDS THE REIMBU RS EMENT FOR SOFTWARE EXPEN S ES, IT HAS BEEN M E NTION E D IN TH E SHOW CAU S E DTD 1 9/10/2012 AND ALSO IN THIS ORDER VIDE P A RA 4 THAT THERE WAS NO EVIDENCE PROVIDED BY TH E ASSESSEE AS TO WHAT W E RE THE LICENSES THAT WERE PROVIDED TO THE ASSESSEE BY THE PARENT COMPANY, HOW WERE THE LICENCES WERE USED BY TH E ASSESSEE COMP A N Y , WHAT WERE THE M ETRICS TH A T WERE USED TO MEASURE THE COST THAT HAS TO BE SHARED BY THE ASSESSEE COMPANY. ( I ) THE ASSESSEE IN ITS REPLY TO THE SHOW CAU S E NOTICE HAS CONTENDED THAT THE DEFINITION IN THE INDIA - C AN A DA DTAA HAS NO T BEEN AMENDED AND ACCORDINGLY THE PAYMENTS FOR LI CENCE FEE ARE NO T C OVERED UNDER THE DEFINITION OF ROYALTY IN TH E AR TIC L E 12 OF DTAA. ( J ) BE THAT AS IT MAY, AND WITHOUT PREJU D I C E TO THE AFOREMENTIONED TREATMENT TH A T THE PAYM E N T S UNDER THE GUISE OF R E IMBURSEM E N T FOR LICENCE FEE, WITHOUT ANY PO S I T IVE EVIDENCE ON THE SPECIFIC PRODUCT USED, METRICS OF USAGE BY THE ASSESSEE AND THE BASIS FOR REIMBU RS E M ENT, IT ONLY REPR E SEN TS A FRESH/CASH INCOME TO M/S. ATI CAN A DA; IT CAN BE SEEN TH A T PAYM E N T S FOR LICENCE FEE IN GENERAL, ARE ALSO CHARGEABLE TO TAX AS ROYALTIES W ITH RETROSPECTIVE EFFECT FROM 1976, VIDE THE EXPLANATION 4 TO SEC T ION 9(1)(VI) OF THE IT ACT , 1961. IN THIS REGARD THE FOLLOWING ANALYSIS CLEARLY SHOWS THAT THE LICENCE FEES ARE INDEED COVERED UNDER THE DEFINITION OF ROYALTY AS PER ARTICLE 12 OF THE DTAA: (I) THE TERM ROYALTY AS USED IN THIS ARTICLE MEANS: (A) PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF A LITERARY, ARTISTIC, OR SCIENTIFIC WORK , INCLUDING CINEMATOGRAPH FILMS OR WORK ON FILMS, T APE OR OTHER MEANS OF REPRODUCTION FOR USE IN CONNECTION WITH RADIO OR TELEVISION BROADCASTING, ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS, OR FOR I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 15 INFORMATION CONCER N ING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPE R I E N C E, IN C LU D I NG G AIN S DERIVED FORM THE ALIENATION OF ANY SUCH RIGHT OR PROPERTY WHICH ARE CONTINGENT ON THE PRODUCTIVITY, USE, OR DISPOSITION THEREOF; A N D ( B ) PAYM E NTS OF ANY KIN D RECEIVED AS CONSIDERATION FOR THE USE OF , OR THE RIGHT TO USE, ANY IN D U S TRIAL, COMMERCIAL OR SCIENTIFIC EQUIPM E N T OTHER THAN PAYM E N T S DE R IVED BY AN ENTERPRISE DESCRIB E D IN PA R AGRAPH 1 OF ARTICLE 8 (SHIPPING AND AIR TRANSPO R T) F R OM ACTI V I TIE S DESC R IBED IN PARAGRAPH 3(C) OR 4 OF ARTICLE 8: (EMPHASIS SUPPLIED) (II) AS CAN BE SEEN FROM THE AFOREM ENTIONED DE FINITION, PAYM E N T FOR USE OF COPYRIGHT OR A SCIENTIFIC WORK IS TERMED AS ROYALTY THAT CAN BE TAXED IN THE SOU R CE COUN T RY FORM WHICH THIS INCOME ARISES. THE USE OF A LIC E N C E TRANSLATES TO USE OF A COP Y RIGHT OF THE COPYRIGHTED SOFTWARE AS LAID OUT BELOW A LIC E NCED SOFTWARE CAN BE USED ONLY IF THE LINC ENC E IS PU R CHA S ED. IN T EC HNI C AL TERMS, THI S TRANSLATES TO HAVING A VERIFICATION CODE/KEY OR A FILE WITH THE ENCRYPTED KEY/VALI D A T ION CODE WITH THE USER OF THE LIC E NCE. A P ART OF TH E COPYRIGHTED SO FTWARE, VALIDATIONS THE LIC E NCE AVAILABLE WITH THE USER OF THE LIC E NCE. THE VALIDATION IS PERFORMED BY A COPY OF TH E COPYRIGHTED SO F TW A RE IN TH E COMPU TE R OWNED BY THE USER OR IN TH E SERVER OWNED BY THE VENDOR. FINALLY, WHEN THE LICENCE IS FOUND TO BE VALID , A COPY O F THE COPYRIGHTED SOFTWARE I S LO A DED INTO TH E PR I MARY MEMORY OF THE COM P U T ER OF THE U S ER FROM TH E SERVER OF THE VENDOR OR FROM TH E SECON DA RY M E MORY (HARD DRIVE ) OF THE U S ER OR FROM A CD GI V EN BY TH E VENDOR TH E AFOREMENTION E D STEPS ARE EXECUTED E A CH TIM E THE USER USES THE COPYRIGHTED SOFTWARE. (III) THUS, IN E A CH TIME THE RE IS A USE OF THE C OPY RIGHTED SOFTWARE, AS IN STEPS LAID OUT ABO V E, TH E RE IS A USE OF COPYRIGHT IN TERMS OF MAKING A SINGLE COPY (OF THE COPYRIGHTED SOFTWARE) AVAILABLE FOR THE USER. I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 16 (IV) I T IS IMPORTANT TO NO T E THAT DTAA DOES NO T SPECIFY THAT USER OF COPYRIGHT FORMIN G A COPY FOR ONES OWN U S E AS NOT BEIN G COVERED UNDER ROYALTY. (V) ALTERNATIVELY, I F TH E CONTENTIONS IS THAT THERE I S NO COMMERCIAL APPLI C A T ION/EXPLOITATI ON OF THE COPYRIGHT, THE FOLLO W IN G NEEDS TO B E ANALYSED THE USA G E OF A COPYRIGHTED SOFTWARE IS AKIN TO THE USAGE OF A PATENTED TECHNOLO G Y AS AN INPUT/ENABLER IN TH E COMM E R C IAL AP PL I C ATION OF THE USER. THE ELEM E N T O F COMMERCIAL EXPLOITATION COM E S IN B EC AUS E THE USER OF TH E LICENCED SOFTWARE HARNESSES THE SOFTWARE FOR HI S OWN BUSINESS PU R PO S ES BY MA K IN G A COPY O F TH E COPYRIGHTED SO F TW A RE EACH TIM E HE USES IT. THEREFORE, IT I S A CLEARLY COVERED CASE USING A COPYRIGHT AS PER DTAA AND ACCORDINGLY NEEDS TO BE T AXED AS ROYALTY. ( K ) HOWEVER, AS EVIDENCED IN THE EXHIBITS 2 & 3, THE DEBIT NOTES ARE E X T R EM E LY SIMPLISTIC AND DO NO T PROVIDE ANY BASIS FOR THE REIM B U RS EMENT OF THE CLAIM E D LIC E NCE FEES. TH E REFORE, THE PAYMENTS UN D ER TH E GUISE OF REIMBURSEMENTS FOR LICENCE FEE, WITHOUT ANY POSITIVE EVIDE N CE ON THE SPECIFI C PRODUCT USED, METRICS OF USAGE BY TH E ASSESSEE AND THE BASIS FOR RE I MBU RS EMENT, IT ONLY REPR E SENTS A FRESH/CASH INCOME TO M/S. ATI CAN A DA. THUS TH E SE PAYM E N T S REPR E SENT FRESH CASH/INCOME TO M /S. ATI CAN A DA CHARGEABLE TO TAX AS INCOM E F R OM OTHER SOU R CES AS PER I T ACT, 1961 AND UNDER THE HEAD OTHER SOU R CES AS PER ARTICLE 21 (3) OF THE INDIA - CANADA DTAA. 13. THE ASSESSING OFFICER FINALLY HELD THAT THE ENTIRE AMOUNT CLAIMED TO BE REMITTED BY THE ASSE SSEE TO ATI TECHNOLOGIES, CANADA ON ACCOUNT OF REIM B U R SEMENT OF SOFTWARE EXPENSE AND ENGINEERING EXPENSE REPRESENTED FRESH INCOME /CASH IN THE HANDS OF ATI TECHNOLOGIES, CANADA , WHICH WAS CHARGEABLE TO TAX IN INDIA AS INCOME FROM OTHER SOU R CES AS PER INC OME TAX ACT, 1961 AS WELL AS ARTICLE 21(3) OF THE INDIA CANADA DTAA. HE ALSO HELD THAT THE I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 17 ASSESSEE THUS WAS LIABLE TO DEDUCT TAX AT SOU R CE AGGREGATIN G TO RS .11,60,75,379 FROM THE TOTAL AMOUNT REMITTED TO THE ATI TECHNOLOGIES, CANADA DURING ALL THE FO U R YEARS UNDER CON S I D E R ATION AS PER THE PROVISION S OF S.195 OF THE AC T, AND HAVING FAILED TO DO SO, IT WAS LIABLE TO BE TR E ATED AS ASSESSEE IN DEFAULT UNDER S.201(1) OF THE AC T, AND INTER E ST WAS PAYABLE THEREON AMOUNTING TO RS .8,38,95,805 UNDER S.201(1A) O F THE ACT. ACCORDINGLY, THE ASSESSEE WAS TREATED AS IN DEFAULT BY THE ASSESSING OFFICER FOR A TOTAL AMOUNT OF RS .19,99,69,184 BY THE IMPUGNED ORDER DATED 28.1.2013 PASSED UNDER S.201(1)/201(1A) OF THE ACT. 14. AGAINST THE COMMON ORDER PASSED BY THE ASSESSING OFFICER UNDER S.201(1)/201(1A) FOR ALL THE FOU R YEARS UNDER CONSIDERATION, APPEALS WERE PREFERRED BY THE ASSESSEE BEFORE THE LEARNED CIT(A). DURIN G THE COU R SE OF APPEL LATE PROCEEDINGS BEFORE THE LEARNED CIT(A), FURTHER SUBM I SSION S WERE MADE ON BEHALF OF THE ASSESSEE COMPANY, RELY I NG ON DOCUMENTARY EVIDENCE FIL E D AS ADDITIONAL EVIDENCE FOR THE FIRST TIME BEFORE TH E LEARNED CIT(A), SUCH AS FEW E - MAILS, INVOICES RAISED BY SOCTRONICS TECHNOLOGIES P. LTD. , DULY APPROVED BY THE EMPLOYEES OF THE ASSESSEE COMPANY BY PUTTING ITS SIGNATURE, INVOICES FOR PURCHASE OF SOFTWARE LICENCES BY ATI TECHNOLOGIES, CANADA , INTERNAL CORRESPON DE NCE FOR CROSS CHARGES, ETC. THE SAME WERE FORWARDED BY THE LEARNED CIT(A) TO THE ASSESSING OFFICER ALONGWITH THE A DDITIONAL EVID E NCE FIL E D BY TH E ASSESSEE IN SUPPO R T FOR VERIFICATION AND COMMENTS. I N THE REMAND REPORT SUBMITTED VIDE LETTER DATED 30.12.2013 TO THE LEARNED CIT(A), THE ASSESSING OFFICER OFFERED HIS COMMENTS , AS EXTRACTED FROM THE IMPUGNED ORDER OF THE CIT(A), AS UNDER - I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 18 I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 19 I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 20 I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 21 I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 22 I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 23 I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 24 15. A COPY OF THE REMAND REPORT SUBMI T TE D BY THE ASSESSING OFFICER WAS PROVIDED BY THE LEARNED CIT(A) TO THE ASSESSEE FOR THE LATTER S COUNTER - COMMENTS. ACCOR D INGLY, THE ASSESSEE FILED WRITTEN SUBMISSIONS OFF ERING ITS COUNTER COMMENTS , AS EXTRACTED FROM THE IMPUGNED ORDER OF THE CIT(A), AS UNDER - I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 25 I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 26 I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 27 I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 28 I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 29 I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 30 16. AFTER CON S I D ERING THE SUBMI S SION S MADE BY THE ASSESSEE AND THE MATERIAL AVAILABLE ON RECORD INCLUDING THE REMAND REPORT FILED BY TH E ASSE SSING OFFICER AND THE COUN T ER COM M ENTS OFFERED BY TH E ASSESSEE THERE ON , THE LEARNED CIT(A) PROCEEDED TO DECIDE THE ISSUES INVOL V ED IN THE APPEALS O F TH E ASSESSEE . AS RE GARDS THE NATURE O F THE AMOUNT CLAIMED TO B E REMITTED BY THE ASSESSEE TO ATI TECHNOLOG IES, CANADA ON ACCOUNT OF REIMBU R SEMENT OF ENGIN E ERING CHARGES PAID TO SOCTRONICS TECHNOLOGIES P. LTD. , THE LEARNED CIT(A) HELD THAT FAC T U A L EVIDENCE GATHERED BY THE ASSESSING OFFICER AND THE LACUNAE IN THE MAINTENANCE O F RECORDS/ACCOUNTS BY TH E ASSESSEE WERE SUFFICIENT TO SHOW THAT THE REAL BENEFICIARY OF THE SER V I C ES RENDERED BY SOCTRONICS TECHNOLOGIES P. LTD. WAS ATI TECHNOLOGIES, CANADA AND NO T THE ASSESSEE COMPANY. HE ALSO HELD T HAT THE UNU S UAL STRUCTURING OF THE TRANSACTION S IN QUESTION SUP P O R TED H IS CONCLUSION. IN THIS REGARD, HE NO T ED T HAT THERE WAS FAILURE ON THE P A RT OF THE ASSESSEE TO EXPLAIN AS TO WHY ITS PARENT COMPANY HAD TO ENTER INTO A CONTRACT FOR ITS BENEFIT WITH SOCTRONICS I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 31 TECHNOLOGIES P. LTD. , WHICH WAS AGAINST THE NO R MS OF INDEPENDENT CORPORATE FUNCTIONING AND THE USUAL PRACTICE FOLLOWED IN THE SOFTWARE INDUSTRY. ACCOR D ING TO HIM, THERE WAS ALSO A FAILURE ON THE P A RT OF THE ASSESSEE TO ESTABLISH ANY BUSINESS PURPOSE FOR THE EXISTENCE OF CONTRACT BETWEEN ITS PARENT CO M PANY AND SOCTRONIC S TECHNOLOGIES P. LTD. WITHOUT ANY REFERENCE TO THE ASSESSEE CO M PANY. HE NOTED THAT ALTHOUGH THE ASSESSEE COMPANY H A D SUBSEQUENTLY ENTERED INTO A CONTRACT DIRECTLY WITH SOCTRONICS TECHNOLOGIES P. LTD. FROM ASSESSMENT YEAR 2010 - 11 WITHOU T THE INVOLVEMENT OF ITS PARENT CO M PANY ATI TECHNOLOGIES, CANADA , NO EXPLANATION WAS OFFERED AS TO WHY SUCH AGREEMENT COULD NO T HAVE BEEN EN T ERED INTO BY THE ASSESSEE COMPA N Y FOR EARLIER YEARS TO SHOW THAT IT WAS THE REAL BENEFICIARY OF THE SERVICES PROVIDED BY SOCTRONICS TEC HNOLOGIES P. LTD. 1 7 . AS R E GARDS THE RELIANCE PLACED BY THE ASSESSEE ON THE O R DER OF THE COMMISSIONER OF SERVICE TAX, WHER E IN A FINDING WAS GIV E N THAT THE SERVICES PROVIDED BY SOCTRONICS TECHNOLOGIES P. LTD. TO ATI TECHNOLOGIES, CANADA WERE ACTUALLY AVA ILED BY TH E ASSESSEE COMPANY, THE LEARNED CIT(A) HELD THAT THE COMMISSIONER OF SERVICE TAX WHILE PASSING THE SAID ORDER DID NO T HAVE THE BENEFIT OF THE OUTCOME OF THE INVESTIGATION MADE BY THE ASSESSING OFFICER, WHICH CLEARLY REVEALED THE TRUE CHAR A CTER OF THE TRANSACTION. HE HELD THAT EVEN GOING BY THE FINDING RECORDED BY THE COMMISSIONER OF SERVICE TAX, THE PAYM E N T S MADE BY THE ASSESSEE TO ITS PARENT COMPANY FOR ENGINEERING SERVI C ES WERE IN THE NATURE OF FEE FOR INCLU D ED SERVI C ES AND THERE WAS A STATUTORY OBLIGATION ON THE ASSESSEE TO DEDUCT TAX AT SOU R CE FROM SUCH PAYMENTS AS PER S.195 OF THE ACT. HE HELD THAT THE CLAIM O F THE ASSESSEE T HAT IT WAS THE ACTUAL BENEFICIARY OF THE SER V ICES PROVIDED BY THE SOCTRONICS TECHNOLOGIES P. LTD. , IN ANY CAS E, WAS UNTENABLE AS ESTABLISHED BY I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 32 TH E ASSESSING OFFICER BY MAKING EXTENSIVE INVESTIGATION S , WHICH REVEALED THAT THE ASSESSEE COMPANY WAS NEVER IN CONTROL OF THE DELIVERABLES PROVIDED BY SOCTRONICS TECHNOLOGIES P. LTD. AND SOCTRONICS TECHNOLOGIES P. LTD. W AS ALWAYS GUIDED BY THE TERMS OF WORKS ISSUED BY THE ATI TECHNOLOGIES, CANADA , A S CLE A RLY OBSERVED EVEN BY THE COMMISSIONER OF SERVICE TAX IN PARA 6.2 OF HIS ORDER. HE TH E R E FORE, AGREED WITH THE CONCLUSION OF THE ASSESSING OFFICER THAT THE AMOUNTS CLAI MED TO B E REMITTED BY THE ASSESSEE COM P A N Y TO ATI TECHNOLOGIES, CANADA AS REIMBURSEMENT OF EXPENDITURE INCURRED FOR THE SER V ICES RECEIVED FROM SOCTRONICS TECHNOLOGIES P. LTD. WAS IN THE NATURE OF FRESH CASH/INCOME RECEIVED BY ATI TECHNOLOGIES, CANADA AND THE SAME WAS CHA R GEABLE TO TAX IN INDIA IN THE HANDS OF ATI TECHNOLOGIES, CANADA AS INCOME F R OM OTHER SOU R CES ARISING IN INDIA , BE ING PAYMENT OF GRATUITOUS NATURE. THE LEARNED CIT(A) ACCORD I NGLY UPHELD THE A CT ION OF THE ASSESSING OFFICER IN TR E ATIN G THE ASSESSEE AS IN DE F A UL T FOR ITS FAILURE TO DE DU CT TAX AT S O URCE F R OM THE SAID REMI T TANCES UN D ER S.201(1) ALON G WITH INTER E ST PAYABLE THEREON UNDER S.201(1A). 1 8 . AS REGARDS THE AMO U N T CLAIMED TO B E REMITTED BY THE ASSESSEE TO ATI TECHNOLOGIES, CANAD A ON ACCOUNT OF REIMBURSEMENT OF SOFTWARE LICENCES, THE LEARNED CIT(A) FOUND THAT ALTHOUGH THIS CLAIM O F TH E ASSESSEE WAS NO T ACCEPTED BY THE ASSESSING OFFICER IN HIS ORDER PASSED UNDER S .201(1), IN TH E AB S EN C E OF THE REQUIRED SUPPO R TING DETAILS AND EV IDENCE, FRESH EVIDENCE FILED BY TH E ASSESSEE D U R ING THE COURSE OF APPELL A TE PRO C EEDIN G S BEFORE HIM IN TH E FORM OF E - MAILS, CORRESPOND E NCE BETWEEN ATI TECHNOLOGIES, CANADA AND THE ASSESSEE COMPANY, COPIES OF INVOICES FOR PURCHASE OF SOFTWARE LIC E NCES BY ATI TECHNOLOGIES, CANADA , ETC. W AS RELEVANT TO SUPPORT THE CLAIM O F TH E ASSESSEE . IN THE R E M A ND REPORT, THE ASSESSING OFFICER ALSO I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 33 ACCEPTED THE GENUINENESS OF THE EXPENDITURE INCURRED BY ATI TECHNOLOGIES, CANADA ON PURCHASE OF SOFTWARE LIC E NCES FOR THE BENE FIT OF ENTIRE GROUP AS WELL AS EFFECTIVE USE OF SUCH LICENSES BY THE ASSESSEE. HE HOWEVER, NO TE D THAT THE EVIDENCE PRODUCED BY THE ASSESSEE ON THIS I S SUE WAS NOT SUFFICIENT TO SUPPORT AND SU BS TANTIATE THE CL A IM OF THE ASSESSEE FULLY. THE ASSESSING OFFICE R AC C OR D INGLY PROPO S ED IN HIS REMAND REPORT THAT THE CLAIM O F TH E ASSESSEE ON THIS ISSUE TO THE EXTENT OF 50% MAY BE ACCEPTED AS GENUINE, BEIN G C R OSS CHARGES PAID TO ATI TECHNOLOGIES, CANADA ON ACCOUNT OF SOFTWARE LICENCE EXPEN SE S. HE AC C OR D I N GLY PROPOS ED THAT 50% OF THE AMOUN T CLAIMED TO BE REMITTED BY TH E ASSESSEE ON ACCOUNT OF SOFTWARE EXPENSE S CAN BE ACCEPTED AND TR E ATING THE SAME AS IN THE NATURE OF ROYALTY, THE BALANCE AMOUNT OF 50% MAY BE TRE A TED AS INCOM E FROM OTHER SOU RC ES, AS ORIGINALLY HELD IN THE ORDER PASSED UNDER S.201(1). THE LEARNED CIT(A) ACCEPTED THIS P ROPOSAL OF THE ASSESSING OFFICER AND OVERRULIN G THE OBJECTION S RAISED BY TH E ASSESSEE IN THIS REGARD, HE HELD T HAT 50% OF THE AMOUNT REMITTED BY THE ASSESSEE COMPANY TO ATI TECHNOLOGIES, CANADA ON ACCOUNT OF SOFTW A RE EXPENSES IS IN THE NATURE OF ROYALTY CHARGEABLE TO TAX IN INDIA IN THE HANDS OF ATI TECHNOLOGIES, CANADA UN D ER THE H E AD OTHER SOU RC ES UNDER S.9(1)( VI ) OF THE INCOME TAX ACT,1961 , AS WELL AS ARTICLE 12 OF INDIA CANADA DTAA AT TH E RATE OF 1 0 %. 19 . AS RE G ARDS THE BALANCE AMOUNT OF 50%, HE HELD HAT IT WAS THE EXCESS PAYM E NT MADE BY THE ASSESSEE COMPANY TO ITS PARENT COMPANY AND THE SAME , TH E R E FORE, WAS CHARGEABLE TO TAX IN IN D IA IN THE HANDS OF ATI TECHNOLOGIES, CANADA AS PE R ARTICLE 12( 8 ) OF INDIA CANADA DTAA AS RIGHTLY HELD BY THE ASSESSING OFFICER . I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 34 2 0 . AGGRIEVED BY THE ORDER OF THE LEARNED CIT(A), THE ASSESSEE HAS PREFERRED TH E SE APPEALS BEFORE THE T RIB U NAL ON THE F OLLOWING GROUNDS - 1. THAT ON THE FACTS AND IN TH E CIRCUMSTANCES OF THE CA S E AND IN LAW, THE O R DER OF THE HON'BLE COMMISSIONER OF INCOME - TAX(APPEALS) V (HEREINAFTER REFERRED TO AS CIT(A) ) DATED 31 JANUARY 2014 UN D ER SECITON250 OF THE INCOME TAX ACT,1961 (THE ACT) IS BAD IN L A W AND IS IN VIOLATION OF TH E PRINCIPLES OF NATURAL JUSTICE. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE HON'BLE CIT(A) ERRED IN CONFIRMING THE ORDER OF LEARNED ASSISTANT DIRECTOR OF INCOME - TAX (INTERNATIONAL TAXATION) - I, HYDERABAD.(HEREINAFTER REFE RRED TO AS LD. ADIT) TR E AT I N G THE APPELLANT COMPANY AS AN ASSESSEE IN DEFAULT UNDER S E C T ION 201(1)/201(1A) OF THE ACT FOR NON - DEDUCTION OF TAX AT SOU R CE IN RESP E CT OF REIMBURSEMENT OF ENGINEERING SERVICE EXPENSE AND SOFTW A RE LICENSE EXPENSES TO ATI TEC HNOLOGIES INC. CANADA (ATI CANADA) ON CO S T TO COST BASIS AND HENCE IS LIABLE TO BE SET ASIDE. 3. THAT ON THE FACTS AND IN TH E CIRCUM S TANCE OF THE CASE AND IN LAW, THE LD. ADIT ERRED AND THE HON'BLE CIT(A) FURTHER ERRED IN CONCLUDING THAT THE APPELL A N T C OMPANY WAS NO T THE BENEFICIARY OF THE ENGINEERING SERVICES PROVIDED BY M/S SOCTRONICS INDIA PRIVATE LIMITED (SOCTRONICS) UNDER THE ARRANGEMENT WITH ATI CANADA AND HAVE FURTHER ERR E D IN HOLDING THAT THE CROSS CHARGE OF ENGINEERING EXPENSES INCURRED BY ATI CANADA ON BEHALF OF THE APPELLAN T AND R E IMBURSEMENT OF THE SAME TO THE ATI CANADA REPR E SENTS FREE CASH/INCOME CHARGEABL E TO TAX IN THE HANDS OF ATI I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 35 CANADA IN INDIA AS OTHERS INCOME UNDER ARTICLE 21 OF THE DOUBLE TAXATION AVOIDANCE A G REEM E NT (DTAA OR TH E TAX TR E ATY) ENTERED INTO BETWEEN I NDIA AND CANADA. 4. THAT ON THE FACTS AND IN THE CIR C UMSTANCES OF TH E CASE AND IN LAW, THE LD . ADIT ERRED AND THE HON'BLE CIT(A) FURTHER ERRED IN HOLDIN G THAT THE REIMBU RS EMEN T OF EN G IN E ERIN G S E RVI C ES TO ATI CANADA WA S A COLOURABLE DEVICE TO REPATRIATE CASH/P R OFITS OUTSIDE INDIA WITHOUT APPRECIATING THE FACT THAT THE APPELLANT BEIN G A CAPTIVE S E RVICE PROVIDER TO ATI TECHNOLOGIES, CANADA UNDER COST PLUS PRICING MODEL, THE R E IMBU RS EMENT, ON THE CONTR A RY, R E SULTED I N NET C ASH FLOW / ADDITIONAL P R O F ITS IN THE HANDS OF THE APPELLAN T COMP A NY. 5. THAT ON THE FACTS AND CIRCUMSTANCES O F TH E CASE AND IN LAW, THE LD. ADIT ERRED AND THE H ONBL E CIT(A) FURTHER ERRED IN NO T DISCH A RGING THE ONUS OF PROVING THE UL T ERIOR MOTIVE OR TAX B ENEFIT ARISING TO THE APPELLANT COMPANY ON ACCOUNT OUT OF REIMBURSEMENT OF ENGINEERING SERVICES TO ATI CANADA WHILE ALLEGING THAT THE SAID REIMBURSEMENT WAS A COLORABLE DEVICE TO REPATRIATE PROFITS/CASH TO ATI CANADA. 6. THAT ON THE FACTS AND CIR C UMSTANC ES OF THE CA S E AND IN LAW, THE LD. ADIT ERRED AND THE LD . CIT(A) FURTHER ERRED IN NOT RELYING ON THE CATEGORICAL FIN D IN G S OF THE HON'BLE COMMI S SION E R OF CU S TOMS, CENTRAL E X CISE AND SERV ICE TAX, VIDE HIS ORD E R DATED 23 JULY 2012 THAT THE E NGINEERING SERVIC ES PROVIDED BY S OCTRONICS UNDER TH E A RRAN G EMENT WITH ATI CAN A DA WAS FOR THE BENEFIT OF THE APP E LLANT COMP A NY. I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 36 7. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. ADIT ERRED AND THE HON'BLE CIT(A) FURTHER ERRED IN NOT APPRECIATING THE FACT THAT THE STATEMENTS MADE BY THE OFFICIALS OF SCOTRONICS BASED ON WHICH THE IMPUGNED ORDER UNDER SECTION 201(1)/(1A) OF THE ACT WAS PASSED, WERE IN FACT INTERESTED PARTIES TO THE OUTCOME OF THE SAID ORDER AND HENCE THEIR STATEMENTS COULD NOT BE RELIED UPON . 8. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. ADIT ERRED AND THE HON'BLE CIT(A) FURTHER ERRED IN NOT TAKING FULL COGNIZAN C E OF TH E ADDITONAL EVIDENCE PRODUCED BY THE APPELLAN T COMPANY DURING THE REMAND P R OCEEDIN G S WHICH CL E ARLY EST ABLISH E D THE CON T RADIC T IONS IN TH E STATEMENTS MADE BY THE DIRECTORS/EMPLOYEES OF SOCTRONICS. 9. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. ADIT ERRED AND THE HON'BLE CIT(A) FURTHER ERRED IN NOT APPRECIATING THE FACT THAT APPRECIATING THE FACT THAT THE REIMBU R SEM E NT OF ENGIN E ERING SE R VICE EXPENSES WAS ON COST TO CO S T BASIS AND AS PER THE SETTLED JUDICIAL PRECEDENTS, IN CASE OF COST TO CO S T R EIM BU R SEMENT, TH E RE IS NO OBLIGATION TO DEDUCT TAX AT SOU R CE UNDER SECTION 195 OF THE ACT. 1 0. WITHOUT PREJU D I C E TO GROUNDS 3 TO 9 ABO V E, THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. ADIT ERRED AND THE HON'BLE CIT(A) FURTHER ERRED IN NOT APPRECIATING THE FACT THAT THE R E AL BENEFICIARY OF THE PAYMENTS MADE BY THE APPELLANT TO AT I CANADA TOWARDS CROSS CHARGE OF ENGIN E ERING SERVI C ES WAS SCOTRONICS AND THUS THE PROVIS I ON S OF SECTION 194J OF THE ACT READ WITH SECTION191 OF TH E AC T SHOULD ONLY COME INTO OPERATION. I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 37 11. TH AT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. ADIT ERRED AND THE HON'BLE CIT(A) FURTHER ERRED IN HOLDING THAT 50% OF THE REIM B U R SEMENT TOWARDS SOFTWARE LICENSEE BY THE APPELLAN T COMPANY TO ATI CANADA WAS TAXABLE IN THE HANDS OF ATI CANADA IN I ND I A AS ROYALTY UNDER ARTICLE 12 OF THE DTAA. 1 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. ADIT ERRED AND THE HON'BLE CIT(A) FURTHER ERRED IN CONCLUDING THAT THE BALANCE FIFTY PERCENT OF CROSS CHARES MADE TO WA RDS SOFTW A RE LICENSES AS NO T REASONABLE. 13. THAT ON THE FACTS AN D IN THE CIRCUMSTANCES OF THE CASE, THE LD. ADIT ERRED AND THE HON'BLE CIT(A) FURTHER ERRED IN QUESTIONING THE COMMERCIAL/BUSINESS EXPEDIENCY O F SOFTWARE EXPENS E S IN P R OCEE D INGS UNDER SECTION 201(1) OF THE ACT. 14. THAT ON THE FACTS AND IN THE CIRCUMST ANCES OF THE CASE, THE LD. ADIT ERRED AND THE HON'BLE CIT(A) FURTHER ERRED IN H O LDIN G THE ALLEGED L50% UNR E ASONABL E PAYMENT TO W AR D S SOFTWARE LICENSES AS INCOME CHARGEABLE TO TAX IN INDIA IN THE HANDS OF ATI CANADA AS OTH E R INCOM E AS PER ARTI C LE 21 OF THE DTAA. 15. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. ADIT ERRED AND THE HON'BLE CIT(A) FURTHER ERRED IN NOT APPRECIATING THE FACT THAT THE REIMBURSEMEN T OF SO F TW A RE LICENSE EXPENSES WAS ON CO S T TO COST BASIS AND AS PER THE SETTL E D JU D ICI A L PRECEDENTS IN CA S E OF COST TO CO S T REI M BU RS EMENTS THERE IS NO OBLIGATION TO DEDUCT TAX AT SOU RC E UNDER SECTION 195 OF THE AC T. I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 38 16. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. ADIT ERRED IN COMPUTING INTEREST WHILE PASSING ORDER UNDER SECTION 201(1)/201(1A) OF THE ACT. 17. WITHOUT PREJU D ICE TO ABO V E GROUND NO.S 1 TO 16 ABO V E, THE LD. ADIT ERRED AND THE HON'BLE CIT(A) FURTH E R ERRED IN NOT AP P R EC IATING THE FACT THAT ATI CANADA BEIN G THE SHAREHOLDER OF THE APPELLANT, THE REIMBU RS E MENT TOWARDS E N GINEERING SERVI C ES AND 50% OF THE SOFTWARE LICENSES ALLEGED TO BE UNREASONABLE CAN AT THE MOST BE CATEGORIZED AS DIVIDEND INCOME UNDER SE CT ION 2(22) ( A) OF THE ACT IN THE HANDS OF ATI CANADA. 2 1 . AS REGAR D S GROUNDS NO.1 AND 2, THE LEARN ED COUNSEL FOR THE ASSESSEE SU B MI T TED T HAT THEY ARE GENERAL IN NATURE, REQUIRING NO SPE C I F I C ADJUDICATION. 2 2 . T HE COMMON ISSUE INVOLVED IN GROUNDS NO.3 TO 9 REL A TES TO THE DETERMINATION OF THE EXACT NATURE OF THE AMOUNT CLAIMED TO BE REMITTED BY THE A SSESSEE TO ATI TECHNOLOGIES, CANADA ON AC C OUN T OF REIMBURSEMENT OF ENGIN E ERING EXPENSE S INCURRED ON SER V ICES RENDERED BY SOCTRONICS TECHNOLOGIES P. LTD. AND THE OBLIGATION OF THE ASSESSEE TO DEDUCT TAX AT SOU R CE FORM THE SAID REMI T TANCE, DEPENDING UPON TH E CHARGEABILITY OF THE SAID AMOUNT IN THE HANDS OF THE ATI TECHNOLOGIES, CANADA IN INDIA. 23. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT WHILE REJECTING THE CLAIM OF THE ASSESSEE THAT THE AMOUNT IN QUESTION W AS ACTUALLY PAID TO PARENT COMPANY TOW A RDS REIMBURSEMENT OF E X PENSES INCURRED ON S ERVI C ES AVAILED F R OM SOCTRONICS TECHNOLOGIES P. LTD. AND HOL D IN G THE SAME TO BE EXTRA I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 39 PROFIT OR CASH PAID GRATUITOUSLY BY THE ASSESSEE TO I T S PARENT COMPA N Y WITHOUT THERE BEING ANY SERVICES AVAILED BY IT, T HE ASSESSING OFFICER AS WELL AS THE CIT(A) COMPLETELY IGNORED THE BUSINESS MO D EL OF THE ASSESSEE COMPA N Y. HE EXPL A IN E D THAT THE ASSESSEE C O MPANY IS ENGAGED BY THE ATI TECHNOLOGIES, CANADA TO RUN CHIP DESIGNING AND SOFTWARE DEVELOPMENT SER V ICES IN CONNECTI ON WITH THE DEVELOP M ENT OF CONSUMER TECHNOLOGIES AS PER THE MASTER SE R VICE AGREEMENT AND SIN C E THE ASSESSEE COMPANY DID NOT HAVE COMPLETE SKILL SET TO RENDER THE FULL SET OF SER V ICES TO ITS PARENT COMPANY AS AGREED , THE LATTER ENGAGED SOCTRONICS TECHN OLOGIES P. LTD. TO PROVIDE THE REQUISITE PORTION OF SERVICES ON ITS BEHALF T O THE ASSESSEE COMPANY. HE INVITED OUR ATTENTION TO THE TRIPARTITE AGREEMENT DATED 1 ST APRIL, 2005 ENTERED INTO BETWEEN THE ATI TECHNOLOGIES, CANADA, THE ASSESSEE COMPANY AND ATI TECHNOLOGIES, BARBODOS PLACED AT PAGES 1086 TO 1094 OF THE PAPER - BOOK AND SUBMITTED THAT AS PER THE SAID AGREEMENT, WHICH WAS ENTERED INTO IN FURTHERANCE WITH THE MASTER TRANSFER PRICING AGREEMENT, SERVICES CONTRACTED BY ONE PARTY FROM A THIRD PARTY WERE MEANT FOR THE BENEFIT OF ALL OTHER MEMBERS OF THE ATI TECHNOLOGIES GROUP. AS REQUIRED BY THE BENCH, HE ALSO FILED A COPY OF THE MASTER TRANSFER PRICING AGREEMENT ENTERED INTO BETWEEN ALL ATI TECHNOLOGIES GROUP COMPANIES WHICH WAS NOT FILED BEFORE THE AUTH ORITIES BELOW AND POINTED OUT FROM THE SAID AGREEMENT THAT THE SERVICES CONTRACTED BY ONE PARTY FORM THIRD PARTY WERE AVAILABLE FOR THE BENEFIT OF ONE OR MORE MEMBERS OF THE ATI GROUP. HE CONTENDED THAT AS PER THE AR RANGEMENT BETWEEN THE GROUP COMPANIES, S KILL RESOURCES AVAILED FROM SOCTRONICS INDIA PRIVATE LIMITED WERE MADE AVAILABLE BY ITS PARENT COMPANY TO THE ASSESSEE COMPANY AND THE PARENT COMPANY IN TURN RAISED DEBIT NOTES ON THE ASSESSEE COMPANY AS A BACK TO BACK COST RECHARGE WITHOUT ANY M A RK UP. I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 40 2 4 . THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT THE ASSESSEE COMPA N Y WAS OPERATING ON A COST PLUS MODEL AND AC C OR D INGLY RAISED INVOICES ON ATI TECHNOLOGIES, CANADA ON COST PLUS MARK UP OF 12 TO 14%. HE SUBMI T TED THAT THIS COST ALSO IN C LU D ED T HE AMOUN T CH A RGED BY ATI TECHNOLOGIES, CANADA TO THE ASSESSEE C O MPANY AND THE ASSESSEE COMPANY THUS GOT BACK WH A TEVER AMOUN T WAS REIMBURSED TO ATI TECHNOLOGIES, CANADA ALONGWITH A MARK UP OF 12 TO 14%. HE CONTENDED THAT THE BASIC PREMISE OF THE ALLEGATION MADE BY TH E ASSESSING OFFICER AND THE LEARNED CIT(A) THAT THE REMITTANCE CL A IM E D TO BE MADE BY THE ASSESSEE COMPA N Y TO ATI TECHNOLOGIES, CANADA ON ACCOUNT OF R E IMBU R SEMENT OF EXPENSES WAS ACTUALLY A PLOY TO DIVERT/REPATRIATE CASH/PROFIT OUTSIDE INDIA WAS TOTALLY UNFOUNDED. 2 5 . THE LEARNED COUNSEL FOR THE ASSESSEE INVITED OU R ATTENTION TO THE COPY O F THE ORDER PASSED BY THE COMMISSIONER OF SERVICE TAX WHEREIN SER V ICE TAX LIABILITY W A S LEVIED AFTER HAVING FOUND THAT THE ASSESSEE COMPA N Y WAS THE BENE FICIARY O F THE ENGINEERING SER V ICES PROVIDED BY SOCTRONICS TECHNOLOGIES P. LTD. . HE SUBMITTED THAT T HIS FIN D ING O F THE COMMISSIONER OF SERVICE TAX HAS NO T B E EN REBUTTED EVEN BY THE ASSESSING OFFICER AND THE CIT(A) AND ON THE OTHER HAND, THEY HAVE OBSERVED IN THE IR RESPECTIVE ORD E RS THAT GOIN G BY THE ORDER OF THE COMMISSIONER OF SERVICE TAX, THE PAYMENT/ REIM B U R SEMENT BY THE ASSESSEE COMPANY TO ATI TECHNOLOGIES, CANADA CL EA RLY REPRESENTED FEE S FOR INCLUDED SER V I C ES . HE REITERATED THAT THE ASSESSING OF FICER AND THE LEARNED CIT(A) HAVE ALSO FAILED TO APPREC I ATE THE FACT THAT GOING BY THE COST PLUS MODEL FOLLOWED BY TH E ASSESSEE COMPANY FOR RAISIN G THE INVOICES ON ITS PARENT COMPANY, THER E WAS N E ITHER ANY DIVERSION OF INCOME F R OM THE ASSESSEE COMPANY NO R ANY FRESH CASH/INCOME IN I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 41 THE HANDS OF ATI TECHNOLOGIES, CANADA ON ACCOUN T OF CROSS CHARGES. HE CONTENDED THAT THERE WAS IN FAC T MORE INCOME BY WAY OF CASH INFLOW TO THE ASSESSEE COMPANY AS A RESULT OF PAYMENT OF SUCH CROSS CHARGES, AS THE SAME WAS IN C L U D ED IN TH E CO S T IN VOICED BY TH E ASSESSEE COMPANY TO ATI TECHNOLOGIES, CANADA ALONGWITH MARK UP. HE CONTENDED THAT THE ATI TECHNOLOGIES, CANADA THUS ACTUALLY LOST MORE MONEY BY WAY OF MARK UP CHARGED BY TH E ASSESSEE ON CO S T INCURRED, WHICH WAS INCLUSIVE OF CROSS CHARGES PAID BY T H E ASSESSEE TO ATI TECHNOLOGIES, CANADA . 2 6 . THE LEARNED COUNSEL FOR THE ASSESSEE INVITED OU R ATTENTION TO PARAGRAPH 6.2 OF THE ORDER OF THE COMMISSIONER OF SERVICE TAX AT PAGE 1112 OF THE PAPER - BOOK, AND POINTED OUT T HAT A CLEAR CUT FINDING WAS RECORDED THEREIN THAT AS P E R THE AGREEMENT BETWEEN THE SOCTRONICS TECHNOLOGIES P. LTD. AND ATI TECHNOLOGIES, CANADA , SOCTRONICS TECHNOLOGIES P. LTD. WAS REQUIRED TO PROVIDE REQUISITE ENGINEERS TO THE ASSESSEE COMPANY, S O THAT IT C OULD ACCOMPLISH THE TASKS OF RESEARCH, DEVELOPMENT, ETC. TO ATI TECHNOLOGIES, CANADA AS P E R THE MASTER SERVICE AGREEMENT. HE SPECIFICALLY POINTED OUT THAT THIS FINDING WAS RECORDED BY THE COMMISSIONER OF SERVICE TAX ON THE BASIS OF THE DUE SEARCH AND VE RIFICATION OF RECORDS BY TH E SERVICE TAX AUTHO R I T I E S AND THE SAME SHOULD HAVE BEEN GIVEN PROPER AND DUE CON S I D ERATION BY THE ASSESSING OFFICER AS WELL AS THE LEARNED CIT(A), FOR ARRIVING AT A CORRE C T CONCLUSION. HE SUBMI T TED THAT THEY , HOWEVER, HAVE RE LIED ON THE S TATEMENTS OF THE PROMOTERS AND EMPLOYEES OF SOCTRONICS TECHNOLOGIES P. LTD. OVERLOOKING THE FA C T THAT SOCTRONICS TECHNOLOGIES P. LTD. WAS AN INTERESTED P A RTY, AS IT WAS CLAIMING DEDUCTION UNDER S.10A OF THE AC T, CLAIMING THE SERVICES RENDERE D TO ATI TECHNOLOGIES, CANADA AS EXPORT SALES. HE CONTENDED THAT THE S A ID STATEMENTS GIVEN BY THE INTERESTED PARTIES TO PRO TECT THEIR I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 42 CLAIM OF DEDUCTION UNDER S.10A CANNOT BE RELIED UPON A ND EVEN THE CONTRADICTIONS IN THEIR STATEMENTS HAVE BEEN CLEARLY PO INTED OUT BY THE ASSESSEE IN THE WRITTEN SUBMISSIONS FILED BEFORE THE AUTHORITIES BELOW ON 30 TH AUGU S T AND 20 TH OCTOBER 2013 (COPIES AT PAGES 491 TO 499 AND 586 TO 589 OF TH E PAPER - BOOK). 2 7 . THE LEARNED CO U N S EL FOR THE ASSESSEE CONTENDED THAT THE ASSE SSEE COMPANY THUS WAS INDEED A BENEFICIARY OF ENGINEERING SERVICES RENDERED BY SOCTRONICS TECHNOLOGIES P. LTD. FOR WHICH ATI TECHNOLOGIES, CANADA INITIALLY MADE THE PAYMENT AND LATER ON CROSS CHARGED TO THE ASSESSEE ON COST TO COST BASIS. HE CONTENDED THA T THERE WAS NO OUTFLOW O F CASH/PROFITS F R OM TH E ASSESSEE COMPANY TO ATI TECHNOLOGIES, CANADA , AS ALL E GED BY TH E AU T HO R I T I E S BELOW AND THERE BEIN G NO ULTERIOR TAX MOTIVE FOR THE ASSESSEE COMPANY TO R E CORD FALSE CROSS CHARGES, THE AUTHO R ITI E S BELOW WERE NO T JUSTIFIED IN TR E ATING THE AMOUNT O F CROSS CHARGES PAID BY TH E ASSESSEE TO ATI TECHNOLOGIES, CANADA AS EXTRA CASH/PROFIT, WHICH WAS CHARGEABLE TO TAX IN INDIA, AS INCOME F R OM OTHER SOU R CES. HE CONTENDED THAT ALL TH E FACTS OF TH E CA S E, EVIDENCE BROUGHT ON R E C O RD BY TH E ASSESSEE AND THE ORDER OF THE COMMISSIONER OF SERVICE TAX A RE SUFFICIENT TO SHOW THAT THE AMOUNT IN QUESTION WAS PAID BY THE ASSESSEE TO ATI TECHNOLOGIES, CANADA ON ACCOUNT OF SER V ICE S RENDERED BY SOCTRONICS TECHNOLOGIES P. LTD. FOR THE BENEFI T OF THE ASSESSEE COMPANY AND THE SAME WA S NO T IN THE NATURE OF ANY GRAT U I T O US PAYMENTS MADE TO ITS PARENT COMPANY, WHI C H IS CHAR G EABLE TO TAX IN INDIA AS INCOME FROM OTHER SOU R CES, AS HELD BY TH E AUTHO R I T I E S BELOW. 28. THE LEARNED COUNSEL FOR THE ASS ESSEE SUBMITTED THAT THE CROSS - CHARGES MADE BY THE ASSESSEE COMPANY TOWARDS ENGINEERING SERVICES BEING IN THE NATURE OF PURE REIMBURSEMENT AT I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 43 COST WITHOUT ANY INCOME ELEMENT EMBEDDED IN IT, THE SAME FALLS OUTSIDE THE PURVIEW OF S.195 OF THE ACT. HE CONTE NDED THAT S.195 CASTS AN OBLIGATION ON ANY PERSON, WHO IS RESPONSIBLE TO PAY TO A NON - RESIDENT , ANY SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT, TO DEDUCT TAX AT THE RATES IN FORCE. RELYING ON THE VARIOUS JUDICIAL PRONOUNCEMENTS, H E CONTENDED THAT SINC E THE AMOUNT IN QUESTION PAID BY THE ASSESSEE COMPANY TO ATI TECHNOLOGIES, CANADA WAS ON ACCOUNT OF REIMBURSEMENT OF ACTUAL EXPENSES INCURRED ON COST TO COST BASIS, WITHOUT THERE BEING ANY ELEMENT OF PROFIT, THE SAME WAS NOT CHARGEABLE TO TAX IN INDIA IN T HE HANDS OF ATI TECHNOLOGIES, CANADA AND THERE WAS NO REQUIREMENT OF DEDUCTION OF TAX AT SOURCE, AS PER THE PROVISIONS OF S.195. HE CONTENDED THAT THE ASSESSEE CONSEQUENTLY CANNOT BE TREATED AS AN ASSESSEE IN DEFAULT UNDER S.201/201(1A) FOR NON - DEDUCTION O F TAX AT SOURCE FROM THE SAID PAYMENT. 2 9 . THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUBMITTED THAT THE CLAIM OF THE ASSESSEE COMPANY OF HAVING AVAILED THE SERVICES OF SOCTRONICS INDIA PRIVATE LIMITED THROUGH ITS PARENT COMPANY IN CANA DA WAS NOT SUPPORTED BY ANY AGREEMENT EITHER BETWEEN THE ASSESSEE COMPANY AND SOCTRONICS INDIA PRIVATE LIMITED OR BETWEEN THE ASSESSEE COMPANY AND ITS PARENT COMPANY. HE SUBMITTED THAT EVEN THE ENQUIRIES AND INVESTIGATIONS MADE BY THE ASSESSING OFFICER CL EARLY REVEALED THAT THE BENEFICIARY OF SERVICES RENDERED BY SOCTRONICS INDIA PRIVATE LIMITED WAS ATI TECHNOLOGIES, CANADA AND NOT THE ASSESSEE COMPANY. HE SUBMITTED THAT THERE IS NO EVIDENCE WHATSOEVER BROUGHT ON RECORD BY THE ASSESSEE TO SHOW THAT IT WAS THE BENEFICIARY OF THE SERVICES RENDERED BY SOCTRONICS INDIA PRIVATE LIMITED FOR WHICH PAYMENT WAS INITIALLY MADE BY ATI TECHNOLOGIES, CANADA AND THE SAME IS CLAIMED TO BE SUBSEQUENTLY REIMBURSED BY IT. HE CONTENDED THAT EVEN THE SO I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 44 CALLED MASTER TRANSFER PRICING AGREEMENT NOW SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE FOR THE FIRST TIME BEFORE THE TRIBUNAL IS VERY VAGUE AND GENERAL AND DO NOT ESTABLISH THE CASE OF THE ASSESSEE THAT IT WAS THE BENEFICIARY OF SERVICES RENDERED BY SOCTRONICS INDIA PRI VATE LIMITED. HE SUBMITTED THAT EXAMINATION CONDUCTED BY THE ASSESSING OFFICER CLEARLY ESTABLISHED THAT THE SERVICES AVAILED FROM SOCTRONICS INDIA PRIVATE LIMITED WERE PLACED IN THE REPOSITORY MAINTAINED WITH ATI TECHNOLOGIES, CANADA AND THE SAME WERE AVA ILABLE TO ALL THE GROUP COMPANIES. HE CONTENDED THAT IN THESE FACTS AND CIRCUMSTANCES, THE STAND OF THE ASSESSEE CANNOT BE ACCEPTED THAT THE ENTIRE COST OF SERVICES RENDERED BY SOCTRONICS INDIA PRIVATE LIMITED WAS BORNE BY IT AND THE SAME WAS FULLY REIMB URSED TO ATI TECHNOLOGIES, CANADA. 30 . AS REGARDS THE ORDER OF THE COMMISSIONER OF SERVICE TAX RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE IN SUPPORT OF ITS CASE, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE FINDING GIVEN THEREIN IS RELEVANT ONLY TO THE EXTENT OF SERVICES RENDERED BY ATI TECHNOLOGIES, CANADA TO THE ASSESSEE COMPANY FOR THE PURPOSE OF LEVY OF SERVICE TAX. HE CONTENDED THAT THE FINDING GIVEN BY THE COMMISSIONER OF SERVICE TAX THAT THE SERVICES RENDERED WERE AVAILED BY ATI TECHNOLOGIES, CANADA FROM SOCTRONICS INDIA PRIVATE LIMITED, HOWEVER, WAS NOT RELEVANT OR GERMANE TO THE ISSUE INVOLVED IN THE CONTEXT OF SERVICE TAX LIABILITY AND THE SAME THEREFORE, CANNOT BE TAKEN COGNIZANCE OF, TO DECIDE THE ISSUE INVOLVED IN TH E PRESENT CONTEXT IN THE INCOME TAX PROCEEDINGS. HE CONTENDED THAT THE SOLE BENEFICIARY OF THE SERVICES RENDERED BY THE SOCTRONICS INDIA PRIVATE LIMITED THUS WAS FOUND TO BE ATI TECHNOLOGIES, CANADA BY THE ASSESSING OFFICER AND IN THE ABSENCE OF ANY EV IDENCE TO SHOW THAT THE ASSESSEE COMPANY ALSO AVAILED THE BENEFIT OF THE SAID SERVICES FORM ATI TECHNOLOGIES, I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 45 CANADA, THE AMOUNT CLAIMED TO BE REMITTED AS THE REIMBURSEMENT OF COST OF THE SERVICES WAS NOTHING BUT THE PAYMENT OF EXTRA PROFIT MADE BY THE A SSESSEE TO THE ATI TECHNOLOGIES, CANADA WHICH WAS CHARGEABLE TO TAX IN THE HANDS OF THE SAID COMPANY IN INDIA AS INCOME FROM OTHER SOURCES. 3 1 . WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. THE MAIN ISSUE IN VOLVED IN THESE APPEALS IS WHETHER THE ASSESSEE COMPANY CAN BE TREATED AS AN ASSESSEE IN DEFAULT UNDER S.201(1) FOR ITS FAILURE TO DEDUCT TAX AT SOURCE FROM THE AMOUNTS REMITTED TO ATI TECHNOLOGIES, CANADA ON ACCOUNT OF ENGINEERING SERVICES AND SOFTWARE AP PLICATIONS/LICENCES. THIS WILL DEPEND UPON THE TAXABILITY OF THE SAID AMOUNTS IN THE HANDS OF THE ATI TECHNOLOGIES, CANADA, IN INDIA, AS THE OBLIGATION/LIABILITY OF THE ASSESSEE TO DEDUCT TAX AT SOURCE FROM THESE AMOUNTS WILL DEPEND UPON AS TO WHETHER THE SAID AMOUNTS ARE CHARGEABLE TO TAX IN INDIA IN THE HANDS OF ATI TECHNOLOGIES, CANADA AS PER THE SPECIFIC PROVISIONS CONTAINED IN S.195. IN ORDER TO DETERMINE THE TAXABILITY OF THE SAID AMOUNT IN THE HANDS OR ATI TECHNOLOGIES, CANADA IN INDIA AS PER THE DO MESTIC LAW AS WELL AS INDIA - CANADA DTAA, IT IS NECESSARY TO ASCERTAIN THE EXACT NATURE OF THE AMOUNTS KEEPING IN VIEW THE RELEVANT FACTS OF THE CASE AS WELL AS MATERIAL PLACED ON RECORD BEFORE US. THE ASSESSEE IN THIS CASE HAS RAISED VARIOUS GROUNDS TO DI SPUTE ITS LIABILITY TO DEDUCT TAX AT SOURCE AND HAS ALSO RAISED CERTAIN ALTERNATIVE CONTENTIONS IN SUPPORT OF ITS CASE. WE THEREFORE, NOW PROCEED TO DECIDE THE ISSUES INVOLVED IN THE APPEALS WITH REFERENCE TO THE SPECIFIC GROUNDS RAISED BY THE ASSESSEE. 3 2 . THE COMMON ISSUE WHICH IS RAISED IN GROUND NOS.3 TO 9 OF THE ASSESSEES APPEALS RELATES TO ITS CLAIM THAT THE AMOUNT I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 46 REMITTED ON ACCOUNT OF ENGINEERING SERVICES TO ATI TECHNOLOGIES, CANADA WAS NOTHING BUT REIMBURSEMENT OF ACTUAL EXPENSES INCURRED BY T HE SAID PARENT COMPANY AND THERE BEING NO ELEMENT OF PROFIT INVOLVED THEREIN, IT WAS NOT CHARGEABLE TO TAX IN INDIA IN THE HANDS OF ATI TECHNOLOGIES, CANADA AND THERE WAS NO QUESTION OF DEDUCTION OF TAX AT SOURCE. THE STAND TAKEN BY THE ASSESSEE IN THIS RE GARD IS THAT THE RELEVANT ENGINEERING SERVICES WERE AVAILED BY ATI TECHNOLOGIES, CANADA ON ITS BEHALF FROM SOCTRONICS INDIA PRIVATE LIMITED AND THE AMOUNT PAID FOR SUCH SERVICES TO SOCTRONICS INDIA PRIVATE LIMITED BY ATI TECHNOLOGIES, CANADA WAS SIMPLY RE IMBURSED BY THE ASSESSEE COMPANY ON ACTUAL COST BASIS. ALTHOUGH THIS STAND OF THE ASSESSEE WAS SUPPORTED BY THE DEBIT INVOICES RAISED ON IT BY ATI TECHNOLOGIES, CANADA, THE ASSESSING OFFICER AS WELL AS THE LEARNED CIT(A) DECLINED TO ACCEPT THE SAME FIRSTL Y ON THE BASIS THAT THERE WAS NO AGREEMENT EITHER BETWEEN THE ATI TECHNOLOGIES, CANADA AND SOCTRONICS INDIA PRIVATE LIMITED OR BETWEEN ATI TECHNOLOGIES, CANADA AND THE ASSESSEE COMPANY AND SECONDLY ON THE BASIS OF STATEMENTS GIVEN BY THE DIRECTORS AND EMP LOYEES OF SOCTRONICS INDIA PRIVATE LIMITED, WHICH, ACCORDING TO THE REVENUE AUTHORITIES, REVEALED THAT THE BENEFICIARY OF THE SERVICES RENDERED BY SOCTRONICS INDIA PRIVATE LIMITED WAS ATI TECHNOLOGIES, CANADA ALONE AND NOT THE ASSESSEE COMPANY. 3 3 . IN S O FAR AS THE FIRST OBJECTION RAISED BY THE REVENUE AUTHORITIES IS CONCERNED, THERE IS NO DISPUTE THAT THERE WAS NO AGREEMENT ENTERED INTO EITHER BETWEEN THE ASSESSEE COMPANY AND SOCTRONICS INDIA PRIVATE LIMITED OR BETWEEN THE ATI TECHNOLOGIES, CANADA, A ND THE ASSESSEE COMPANY, WHICH WAS PRO D U C ED TO SUPPORT THE CASE OF THE ASSESSEE HOWEVER, THE AGREEMENT BETWEEN THE ATI TECHNOLOGIES, CANADA AND ITS GROUP COMPANIES CALLED MASTER SERVICE AGREEMENT WAS PRODUCED BY THE ASSESSEE, I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 47 WHICH WAS SUFFICIENT TO SH OW THAT THE ASSESSEE COMPANY WAS ENGAGED BY ATI TECHNOLOGIES, CANADA TO RENDER CHIP DESIGNING AND SOFTWARE DEVELOPMENT SER V I C ES IN CONNECTION WITH THE DEVELOPMENT OF CONSUMER TECHNOLOGY AND SINCE THE ASSESSEE COMPANY DID NOT HAVE THE COMPLETE SKILL SET TO RENDER SUCH SERVICES, THE ATI TECHNOLOGIES, CANADA WAS TO PROVIDE THE REQUISITE PORTION OF SERVICES TO THE ASSESSEE THROUGH OTHER CONCERNS. IN FURTHERANCE OF THE MASTER SERVICE AGREEMENT, THE MASTER TRANSFER PRICING AGREEMENT WAS ALSO ENTERED INTO BET WEEN THE ASSESSEE COMPANY AND ATI TECHNOLOGIES, CANADA WHICH CLEARLY PROVIDED THAT SER V I C ES CONTRACTED BY ONE PARTY FROM A THIRD PARTY WERE ALSO MEANT FOR THE BENEFIT OF OTHER MEMBERS OF ATI GROUP INCLUDING THE ASSESSEE COMPANY. IN OUR OPINION, THESE AGR EEMENT S ARE SUFFICIENT TO SHOW THE BUSINESS MODEL FOLLOWED BY THE ENTIRE GROUP, WHEREBY PARENT COMPANY, I.E. ATI TECHNOLOGIES, CANADA WAS ENTRUSTING SPECIFIC JOBS TO ITS SUBSIDIARIES AND THE SERVICES O R SKILL SET REQUIRED FOR THE EXECUTION OF THE SAID JOB NOT AVAILABLE WITH THE SUBSIDIARIES WERE PROCURED FROM THE THIRD PARTIES AND THE SAME W ERE MADE AVAILABLE TO THE SUBSIDIARY COMPANY. IT THEREFORE, CANNOT BE SAID THAT THE CLAIM OF THE ASSESSEE OF HAVING AVAILED THE BENEFIT OF SERVI C ES RENDERED BY SOCTRO NICS INDIA PRIVATE LIMITED THROUGH ATI TECHNOLOGIES, CANADA IS NOT SUPPORTED BY ANY DOCUMENTARY EVIDENCE IN THE FORM OF AGREEMENTS EXCEPT THE DEBIT INVOICES RAISED BY ATI TECHNOLOGIES, CANADA ON THE ASSESSEE COMPANY. 3 4 . AS REGARDS THE HEAVY RELIANCE PLACED BY THE ASSESSING OFFICER ON THE STATEMENTS OF THE DIRECTORS AND EMPLOYEES OF SOCTRONICS INDIA PRIVATE LIMITED TO COME TO THE CONCLUSION THAT THE BENEFICIAR Y OF THE SERVICES RENDERED BY THE SAID INDIAN CONCERN W AS ONLY ATI TECHNOLOGIES, CANADA , IT IS PERTINENT TO NOTE THAT THE AMOUNT RECEIVED BY THE SAID CONCERN FROM ATI TECHNOLOGIES, I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 48 CANADA FOR THE SERVICES RENDERED WAS CLAIMED TO BE EXPORT SALES ELIGIBLE FOR DEDUCTION UNDER S .10A OF THE ACT, AND KEEPING IN VIEW THIS VITAL ASPECT, WE ARE INCLINED TO ACCEPT THE CONTENTION OF THE LEARNED COUNSEL F OR THE ASSESSEE THAT THE SAID PARTY, IN ORDER TO PROTECT THEIR OWN INTERESTS , DID NOT RE VE AL THE INVOLVEMENT OF THE ASSESSEE COMPANY AN D EMPHASIS ED THAT THE BENEFICIARY OF THE SERVICES RENDERED BY THEM WA S ONLY THE ATI TECHNOLOGIES, CANADA . M/S. SOCTRONICS INDIA PRIVATE LIMITED THUS WAS CLEARLY AN INTERESTED PARTY AND THE STATEMENTS MADE BY THE BOARD OF DIRECTORS AND THE EMPLOYEES TO PROTECT THEIR OWN INTEREST AND TO ENSURE THAT THEIR CLAIM FOR DEDUCTION UNDER S.10A IS NOT ADVERSELY AFFECTED, CANNOT BE RELIED UPON TO CONCLUSIVELY HOLD THAT THE BENEFICIARY OF SERVICES RENDERED BY THEM WAS ATI TECHNOLOGIES, CANADA ONLY. IN OUR OPINION, THE CLAIM OF THE ASSESSEE OF HAVING AVAILED THE BENEFIT OF SERVICES R ENDERED BY SOCTRONICS INDIA PRIVATE LIMITED TO ATI TECHNOLOGIES, CANADA NEED S TO BE CONSIDERED ON THE BASIS OF THE OTHER FACTS OF THE CASE, WHICH ARE RELEVANT IN THIS CONTEXT AS WELL AS OTHER DOCUMENTARY EVIDENCE AVAILABLE ON RECORD. 3 5 . AS ALREADY NOTED ABOVE, THE CLAIM OF THE ASSESSEE OF HAVING REMITTED THE AMOUNT IN QUESTION TO ATI TECHNOLOGIES, CANADA FOR THE SERVICES AVAILED BY THE SAID COMPANY FROM SOCTRONICS INDIA PRIVATE LIMITED , WHICH WAS DULY SUPPORTED BY DEBIT INVOICES RAISED BY THE SAID COMPA NY, WAS REJECTED BY THE AUTHORITIES BELOW AND IT WAS HELD BY THEM THAT THE SAID AMOUNT WAS PAID BY THE ASSESSEE TO ATI TECHNOLOGIES, CANADA AS EXTRA PROFIT/CASH, WITHOUT THERE BEING ANY SERVICES PROVIDED BY THE SAID COMPANY FOR S O ME EXTRA CONSIDERATION, SUCH AS TAX BENEFIT. AS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE IN THIS REGARD, THE ASSESSEE COMPANY HOWEVER, WAS FOLLOWING A COST PLUS MODEL AND THE AMOUNT IN QUESTION CLAIMED TO BE PAID BY IT TO ATI I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 49 TECHNOLOGIES, CANADA FOR ENGINEERING SERVICE S FORMING PART OF ITS COST WAS DULY RE CO VERED FROM ATI TECHNOLOGIES, CANADA ALONGWITH MARK UP. KEEPING IN VIEW THIS FACTUAL POSITION, WHICH HAS NOT BEEN DISPUTED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE , WE ARE UNABLE TO VISUALIZE AS TO HOW ANY BENE FIT COULD ACCRUE TO ATI TECHNOLOGIES, CANADA BY PAYMENT OF THE AMOUNT IN QUESTION, EVEN IF IT IS ASSUMED FOR THE SAKE OF ARGUMENT THAT IT WAS NOTHING BUT PAYMENT OF EXTRA PROFIT/CASH BY THE ASSESSEE COMPANY, WITHOUT THERE BEING PROVISION OF ANY SERVICES, AS ALLEGED BY THE R EVENUE AUTHORITIES. AS RIGHTLY CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE, ATI TECHNOLOGIES, CANADA WAS ACTUALLY A LOSER AS A RESULT OF THIS ARRANGEMENT IN AS MUCH AS THE AMOUNT IN QUESTION RECEIVED BY IT WAS NOT ONLY PAID BACK TO THE ASSESSEE COMPANY, BUT THE SAME WAS PAID BACK WITH MARK UP. 3 6 . IT IS OBSERVED THAT THE EXACT NATURE OF THIS ARRANGEMENT O R TRANSACTION WAS ALSO EXAMINED BY THE SERVICE TAX AUTHORITIES TO ASCERTAIN THE LIABILITY ON ACCOUNT OF SERVICE TAX AND THE M ATTER WENT UP TO THE COMMISSIONER OF SERVICE TAX, WHO PASSED AN ORDER DATED 23.7.2012 DECIDING THIS ISSUE. A COPY OF THE SAID ORDER IS PLACED AT PAGE S 1110 TO 1145 OF THE ASSESSEES PAPER - BOOK AND A PERUSAL OF THE SAME SHOWS THAT A FINDING WAS RECORDED BY H I M IN PARAGRAPH NO.6 , ON VERIFICATION OF THE DOCUMENTS RECOVERED DURING THE SEARCH OPERATION AND THE RECORD/INFORMATION SUBMITTED BY THE ASSESSEE THAT THE ATI G ROUP HAD A MASTER TRANSFER PRICING AGREEMENT AMONG THEMSELVES TO PROVIDE THE R&D SERVICES AND AS PER CLAUSE 4 OF THE SAID AGREEMENT, A SUPPLYING MEMBER OF THE ATI G ROUP WAS TO MAKE A CHARGE FOR THE SERVICES RENDERED OR PROVIDED BY IT TO ANOTHER M EMBER OF THE ATI GROUP AT COST PLUS WITH PROFIT COMPONENT. IT WAS ALSO NOTED IN PARAGRAPH N O.6.2 , ON VERIFICATION OF THE DOCUMENTS , THAT ATI HA S A CONTRACTOR SERVICE AGREEMENT I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 50 WITH SOCTRONICS INDIA PRIVATE LIMITED (EARLIER KNOWN AS GD MICRO SYSTEMS) FOR PROVIDING REQUIRED NUMBER OF ENGINEERS TO ACCOMPLISH THE TASKS RELATING TO RESEARCH AND DEVEL OPMENT TO THE ASSESSEE COMPANY. THE TASKS ACCOMPLISHED BY THE SAID ENGINEERS WERE ALSO IDENTIFIED AS PERTAINING TO DESIGN, VERIFICATION, MODEL BUILDING, CHIP QUALIFICATION DEBUGGING ACTIVITIES OF A PPLICATION I NTEGRATED C IRCUITS, ETC., FOR WHICH PAYMENT S WERE STATED TO BE MADE IN FOREIGN CURRENCY BY ATI TECHNOLOGIES, CANADA . IT WAS FURTHER OBSERVED IN PARAGRAPH 6.3 BY THE COMMISSIONER OF SERVICE TAX THAT THESE SERVICES RENDERED BY THE VENDOR S AND PROCURED BY ATI TECHNOLOGIES, CANADA WERE PROVIDED TO THE ASSESSEE COMPANY FOR UTILSING THE SAME IN RENDERING SOFTWARE DEVELOPMENT AND RESEARCH SERVICES. IN OUR OPINION, THE SE CLEAR CUT FINDINGS RECORDED BY THE COMMISSIONER OF SERVICE TAX WERE SUFFICIENT TO SHOW THAT THE BENEFIT OF SERVICES RENDERED BY SOCTRONI CS INDIA PRIVATE LIMITED AND PROCURED BY ATI TECHNOLOGIES, CANADA WAS AVAILED BY THE ASSESSEE COMPANY, AND THE AMOUNT IN QUESTION WAS PAID BY THE ASSESSEE COMPANY TO ATI TECHNOLOGIES, CANADA FOR SUCH SERVICES. 3 7 . IT IS OBSERVED THAT THE ASSESSING OFF ICER , HOWEVER, BRUSHED ASIDE TH E FINDING S RECORDED BY COMMISSIONER OF SERVICE TAX AND RELEVANT EVIDENCE IN THE FORM OF ORDER OF THE COMMISSIONER OF SERVICE TAX ON THE GROUND THAT THERE WAS DELAY ON THE PART OF THE ASSESSEE TO SUBMIT THE SAID ORDER PASSED ON 23.7.2012 AND BY TH E TIME IT WAS FILED, HE HAD ALREADY COMPLETED HIS INVESTIGATIONS, WHICH, ACCORDING TO HIM, REVEALED THAT THE BENEFICIARY OF THE SERVICES RENDERED BY SOCTRONICS INDIA PRIVATE LIMITED WAS ONLY ATI TECHNOLOGIES, CANADA AND NOT THE ASSE SSEE COMPANY. AS ALREADY HELD BY US, THE MAIN EVIDENCE COLLECTED BY THE ASSESSING OFFICER DURING THE COURSE OF SUCH INVESTIGATION IN THE FORM OF STATEMENTS OF D IRECTORS AND EMPLOYEES OF SOCTRONICS INDIA PRIVATE LIMITED , WA S I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 51 NOT A RELIABLE EVIDENCE TO CONCL USIVELY ESTABLISH THE CASE OF THE ASSESSING OFFICER. MOREOVER, THE FINDINGS RECORDED BY THE COMMISSIONER OF SERVICE TAX WERE NOT SPECIFICALLY DISPUTED EITHER BY THE ASSESSING OFFICER OR THE LEARNED CIT(A). ON THE OTHER HAND, THEY OBSERVED IN THEIR RESPEC TIVE ORDERS THAT GOING BY THE FINDINGS GIVEN BY THE COMMISSIONER OF SERVICE TAX IN HIS ORDER, THE SERVICES AVAILED BY THE ASSESSEE COMPANY FROM ATI TECHNOLOGIES, CANADA THROUGH SOCTRONICS INDIA PRIVATE LIMITED WERE IN THE NATURE OF TECHNICAL SERVICES AND ACCORDINGLY, THE AMOUNT PAID FOR SUCH SERVICES BY THE ASSESSEE COMPANY WAS CHARGEABLE TO TAX IN THE HANDS OF ATI TECHNOLOGIES, CANADA IN INDIA AS FEE S FOR INCLUDED SERVICES AS PER DOMESTIC LAW AS WELL AS INDIA CANADA DATA. 3 8 . THERE IS ONE M ORE INTERESTING ASPECT RELATING TO THIS ISSUE. AS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE, SOCTRONICS INDIA PRIVATE LIMITED HAS ENTERED INTO A DIRECT AGREEMENT WITH THE ASSESSEE COMPANY FROM ASSESSMENT YEAR 2010 - 11 ONWARDS TO PROVIDE SIMILAR SERV ICES AS RENDERED IN THE EARLIER YEARS INCLUDING THE YEARS UNDER CONSIDERATION AS PER THE AGREEMENT ENTERED INTO WITH ATI TECHNOLOGIES, CANADA . AS FURTHER SUBMITTED BY HIM, THE GENUINENESS OF THE SERVICES RENDERED AS PER THE SAID AGREEMENT TO ASSESSEE COM PANY BY SOCTRONICS INDIA PRIVATE LIMITED FOR ASSESSMENT YEAR 2010 - 11 AND ONWARDS IS NOT DISPUTED BY THE DEPT. IT SEEMS THAT F R O M ASSESSMENT YEAR 2010 - 11 ONWARDS, SOCTRONICS INDIA PRIVATE LIMITED WAS NO MORE ELIGIBLE FOR THE BENEFIT OF DEDUCTION AVAILABLE UNDER S.10A AND ACCORDINGLY, THEY AGREED TO ENTER INTO A DIRECT AGREEMENT WITH THE ASSESSEE COMPANY. BE THAT AS IT MAY, THIS SUBSEQUENT DEVELOPMENT CLEARLY SUPPORTS THE CASE OF THE ASSESSEE THAT THE SERVICES RENDERED BY SOCTRONICS INDIA PRIVATE LIMITED A ND PROCURED BY THE ATI TECHNOLOGIES, CANADA WERE MEANT I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 52 FOR THE BENEFIT OF THE ASSESSEE COMPANY ALSO AND THE AMOUNT IN QUESTION WAS PAID TO ATI TECHNOLOGIES, CANADA FOR SUCH SERVICES. 39 . HAVING HELD THAT THE AMOUNT IN QUESTION W AS PAID BY THE ASSESSEE COMPANY TO ATI TECHNOLOGIES, CANADA FOR THE BENEFIT IT DERIVED IN THE FORM OF SERVICES PROCURED FROM SOCTRONICS INDIA PRIVATE LIMITED AND PROVIDED TO IT BY ATI TECHNOLOGIES, CANADA , AND IT IS NOT A CASE OF ANY PAYMENT OF EXTRA PROFIT/CASH BY THE ASSESSEE COMPANY TO ATI TECHNOLOGIES, CANADA AS ALLEGED BY THE AUTHORITIES BELOW, THE NEXT ISSUE THAT ARISES FOR OUR CONSIDERATION IS WHETHER IT WAS A CASE OF A MERE REIMBURSEMENT OF ACTUAL EXPENSES INCURRED BY THE ATI TECHNOLOGIES, CANADA ON COST BASIS WITHOUT ANY PROFIT ELEMENT INVOLVED THEREIN AS CLAIMED BY THE ASSESSEE. IN THIS REGARD, IT IS PERTINENT TO NOTE THAT THE SERVICES WERE RENDERED BY SOCTRONICS INDIA PRIVATE LIMITED TO ATI TECHNOLOGIES, CANADA AS PER THE CONTRACTOR SERVICE AGREEMENT EXECUTED ON 20 TH MARCH, 2006 (A COPY OF THE SAID AGREEMENT IS PLACED AT PAGES 1098 TO 1109 OF THE ASSESSEES PAPER BOOK). A S STIPULATED IN THE PREAMBLE OF THE SAID AGREEMENT, SOCTRONICS INDIA PRIVATE LIMITED WAS RETAINED BY ATI TECHNOLOGIES, CANADA AS CONTRACTOR TO PRO VIDE CERTAIN S ERVICES AS DETAILED IN THE SCHEDULE OF SERVICES ATTACHED TO THE AGREEMENT. CLAUSE 2 OF THE SAID AGREEMENT SPECIFIE D THAT IN RENDERING THE SERVICES TO ATI TECHNOLOGIES, CANADA , SOCTRONICS INDIA PRIVATE LIMITED MAY DEVELOP SCIENTIFIC, TECHNICAL AND/OR BUSINESS INNOVATIONS . IT FURTHER SPECIFIE D IN SUB - CLAUSE (B) OF CLAUSE 2.1 THAT THE CONTRACTOR, I.E. SOCTRONICS INDIA PRIVATE LIMITED AGREE S THAT ALL IN NOVATIONS AND CONTRACT WORK PRODUCT RESULTING FROM THE PROVISION OF SUCH SERVICES WILL BE T HE SOLE AND EXCLUSIVE PROPERTY OF ATI TECHNOLOGIES, CANADA AND THE CONTRACTOR ASSIGNS TO ATI TECHNOLOGIES, CANADA ALL THE RIGHTS IN INNOVATIONS AND SUCH WORK PRODUCTS AND IN ALL RELATED PATENTS, PATENT APPLICATIONS, COPY RIGHTS I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 53 MASK WORK RIGHTS , TRADE AR KS, TRADE SECRETS, RIGHTS OF PRIORITY AND OTHER PROPRIETARY RIGHTS. 4 0 . IT MAY ALSO BE RELEVANT TO NOTE HERE THAT EVEN AS PER THE MASTER TRANSFER PRICING AGREEMENT EXECUTED AMONG THE ATI GROUP COMPANIES, SERVICE CONTRACTED FROM THIRD PARTIES PROCURED B Y ATI TECHNOLOGIES, CANADA WERE AVAILABLE FOR THE BENEFIT O F OTHER GROUP COMPANIES, INCLUDING THE ASSESSEE COMPANY. HAVING REGARD TO ALL THESE FACTS OF THE CASE INCLUDING ESPECIALLY THE FACT THAT THE PROPRIETARY RIGHT OF ANY OF THE INVENTIONS, AND CONTRAC T WORK PRODUCTS RESULTING FROM THE PROVISION OF SERVICES BY SOCTRONICS INDIA PRIVATE LIMITED WERE RETAINED BY ATI TECHNOLOGIES, CANADA , WE ARE UNABLE TO ACCEPT THE STAND OF THE ASSESSEE THAT IT WA S THE ONLY BENEFICIARY OF THE SERVICES RENDERED BY SOCTR ONICS INDIA PRIVATE LIMITED THROUGH ATI TECHNOLOGIES, CANADA AND THAT IT WAS A CASE OF PURE REIMBURSEMENT OF ACTUAL EXPENSES INCURRED BY ATI TECHNOLOGIES, CANADA ON COST BASIS, WITHOUT THERE BEING ANY PROFIT ELEMENT INVOLVED THEREIN. IN OUR OPINION, ATI TECHNOLOGIES, CANADA WAS ALSO SUBSTANTIALLY BENEFITTED FROM THE SERVICES RENDERED BY SOCTRONICS INDIA PRIVATE LIMITED BY RETAINING THE PROPRIETARY RIGHTS AND WHAT WAS PROVIDED BY THEM TO THE ASSESSEE WAS ONLY A PART OF THE BENEFIT OF SUCH SERVICES FOR CON SIDERATION WHICH WAS INCLUSIVE OF PROFIT. IT WAS THUS NOT A CASE OF GRATUITOUS PAYMENT MADE BY THE ASSESSEE COMPANY TO ATI TECHNOLOGIES, CANADA AS ALLEGED BY THE REVENUE AUTHORITIES, NOR THE CASE OF REIMBURSEMENT OF ACTUAL EXPENSE ON COST BASIS SIMPLICITO R WITHOUT ANY ELEMENT OF PROFIT AS CLAIMED BY THE ASSESSEE. 4 1 . HAVING HELD THAT THE AMOUNT IN QUESTION WAS REMITTED BY THE ASSESSEE COMPANY TO ATI TECHNOLOGIES, CANADA FOR CERTAIN BENEFITS RECEIVED BY IT IN THE FORM OF SERVICES PROCURED BY ATI I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 54 TECHNO LOGIES, CANADA FROM SOCTRONICS INDIA PRIVATE LIMITED AND PROVIDED TO THE ASSESSEE COMPANY, AND IT WAS NOT A CASE OF EITHER GRATUITOUS PAYMENT MADE BY THE ASSESSEE OR MERE REIMBURSEMENT OF EXPENDITURE INCURRED BY THE ATI TECHNOLOGIES, CANADA , THE QUESTIO N THAT NOW ARISES FOR OUR CONSIDERATION IS WHAT EXACTLY IS THE NATURE OF THIS PAYMENT. AS ALREADY NOTED BY US , ALMOST SIMILAR VIEW, AS TAKEN BY US ON THIS ISSUE, HAS BEEN TAKEN BY THE COMMISSIONER OF SERVICE TAX VIDE HIS ORDER DATED 23.7.2012 . IN THEIR RESPECTIVE ORDERS, THE ASSESSING OFFICER AS WELL AS THE LEARNED CIT(A) HAVE OBSERVED THAT IF ONE WERE TO GO BY THE CONCLUSION OF THE COMMISSIONER OF SERVICE TAX, THE AMOUNT IN QUESTION PAID BY THE ASSESSEE TO ATI TECHNOLOGIES, CANADA FOR SERVICES PROCU RED FROM SOCTRONICS INDIA PRIVATE LIMITED AND MADE AVAILABLE TO THE ASSESSEE COMPANY WILL BE IN THE NATURE OF FEE FOR INCLUDED SERVICES WHICH IS CHARGEABLE TO TAX IN THE HANDS OF ATI TECHNOLOGIES, CANADA AS PER THE DOMESTIC LAW AS WELL AS INDIA CANADA D TAA. AT THE TIME OF HEARING BEFORE US, WHEN THIS POSITION WAS CONFRONTED TO THE LEARNED COUNSEL FOR THE ASSESSEE, HE HAS ALSO AGREED THAT IF THE CASE OF THE ASSESSEE FOR REIMBURSEMENT OF ACTUAL COST TO ATI TECHNOLOGIES, CANADA , WITHOUT ANY PROFIT ELEMENT IS NOT FOUND ACCEPTABLE BY THE TRIBUNAL, THE AMOUNT IN QUESTION IS LIABLE TO BE TREATED AS FEE FOR INCLUDED SERVICES , WHICH IS CHARGEABLE TO TAX IN INDIA IN THE HANDS OF ATI TECHNOLOGIES, CANADA AS PER THE DOMESTIC LAW AND INDIA CANADA DTAA. I T ACCORDIN GLY FOLLOWS THAT THE ASSESSEE COMPANY WAS LIABLE TO DEDUCT TAX AT SOURCE FROM THIS AMOUNT AS PER THE PROVISIONS OF S.195 , AND HAVING FAILED DO SO, IT HAS TO BE TREATED AS AN ASSESSEE IN DEFAULT UNDER S201(1) TO THE EXTENT OF TAX PAYABLE BY ATI TECHNOLOGIES , CANADA IN INDIA ON THE MOUNT IN QUESTION WHICH IS IN THE NATURE OF FEE FOR INCLUDED SERVICES . WE ACCORDINGLY MODIFY THE ORDER OF THE LEARNED CIT(A) ON THIS ISSUE AND SUSTAIN THE ORDER OF THE ASSESSING OFFICER IN TREATING I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 55 THE ASSESSEE AS IN DEFAULT UN DER S201(1) TO THE EXTENT OF TAX PAYABLE BY ATI TECHNOLOGIES, CANADA IN INDIA ON THE AMOUNT IN QUESTION WHICH IS CHARGEABLE AS FEE FOR INCLUDED SERVICES ALONGWITH INTEREST PAYABLE THEREON UNDER S.201(1A). GROUNDS NO.3 TO 9 OF THE ASSESSEES APPEALS ARE ACCORDINGLY DISPOSED OF. 4 2 . THE ISSUE RAISED IN GROUND NO.10 RELATES TO THE ASSESSEES CLAIM FOR THE APPLICABILITY OF THE P R OVI SI ON S OF S .194J OF THE ACT TO THE AMOUNT CLAIMED TO BE PAID TO SOCTRONICS INDIA PRIVATE LIMITED FOR THE SERVICES AVAILED THRO UGH ITS PARENT COMPANY ATI TECHNOLOGIES, CANADA . 4 3 . T HE LEARNED COUN S EL FOR THE ASSESSEE SUBMITTED THAT THE REAL BENEFICIARY OF THE SERVI C ES PROVIDED BY THE SOCTRONICS INDIA PRIVATE LIMITED FOR WHICH THE AMOUNT IN QUESTION WAS PAID WAS THE ASSESSEE CO MPANY AND NO T ITS PARENT COMPANY, I.E. ATI TECHNOLOGIES, CANADA. HE CONTENDED THAT IT WAS THUS A CASE OF PAYMENTS MADE BY THE ASSESSEE COMPANY THROUGH ITS PARENT COMPANY FOR THE SERVI C ES AVAILED FROM SOCTRONICS INDIA PRIVATE LIMITED, ANOTHER INDIAN CONCER N AND THE SAME, TH E R E FORE, WAS COVERED UNDER THE PROVIS I ONS OF S.194 J AND NOT S.195. H E ALSO CONTENDED THAT IT IS, THER E FORE, NECESSARY THAT THE TAXABILITY O F TH E AMOUNT IN QUESTION IS TO BE EXAMINED IN THE HANDS OF SOCTRONICS INDIA PRIVATE LIMITED , WHO I S THE ULTIMATE REC I PIENT OF THE PAYM E N T S MADE BY TH E ASSESSEE FOR THE SERVICES AVAILED THROUGH ITS PARENT COMPANY, AND , IF AT ALL, TAX IS REQUIRED TO BE DEDUCTED AT SOU R CE FORM TH E SAID PAYMENTS, THE SAME COULD BE ONLY UN D ER S.194J OF THE AC T. RELYING O N TH E P R O V I SI ON S OF S.191 OF THE AC T, H E CONTENDED T HAT THE ASSESSEE COMP AN Y AS PER THE SAID PROVISION CAN B E CON S I DE RED A S IN DEFAULT UNDER S.201(1) OF THE ACT, ONLY I F THE RELEVANT TAXES DUE ON THE AMO U N T IN QUESTION CANNO T BE DIRECTLY I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 56 RECOVERED F R OM THE DEDUCTEE, I.E. SOCTRONICS INDIA PRIVATE LIMITED. HE CONTENDED THAT AS PER THE IN F O R M A TION OF THE ASSESSEE COMPA N Y, THE AMOUNT IN QUESTION RECEIVED BY SOCTRONICS INDIA PRIVATE LIMITED FROM ATI TECHNOLOGIES, CANADA HA S ALREADY BEEN INCLUDED IN ITS INCOME DECLARED IN THE RE T UR N S FOR TH E RELE V ANT YEARS AND THERE BEING NO ASSESSED TAXES WHICH ARE DUE FROM SOCTRONICS INDIA PRIVATE LIMITED, THE ASSESSEE COMPANY CANNO T B E CON S I D ERED AS IN DEFAULT AS PER THE PROVISION S O F S.191 OF THE AC T. IN SUPPORT OF THIS C ON T ENTION, HE RELIED ON THE DECISION OF THE APEX COURT IN THE CASE OF HINDUSTAN COCA - COLA BEVERAGES PVT. LTD. V/S. CIT (293 ITR 226). 4 4 . THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, RELIED ON THE ORDERS OF THE AUTHORITIES BELOW IN SUPPO RT OF THE REVENUES CASE ON THIS ISSUE. 4 5 . AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATER I AL ON RECORD, WE ARE UNABLE TO ACCEPT THE STAND OF THE ASSESSEE ON THIS ISSUE. AS ALREADY HELD BY US, THE AMOUNT IN QUESTION WAS REMI T TED BY THE ASSESSEE COMPANY TO ITS PARENT COMPANY IN CANADA FOR THE SERVICES PROCURED BY THE SAID COMPANY FROM SOCTRONICS INDIA PRIVATE LIMITED AND PROVIDED TO THE ASSESSEE FOR WHICH THE ASSESSEE COMPANY WAS CH A R G ED WITH PROFIT. KEEPING IN VIEW THIS FIN DING RECORDED BY US, WE DO NOT FIND MERIT IN THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO.10 AND ACCORDINGLY DISMISS THE SAME. 4 6 . INSOFAR AS THE AMOUNT CLAIMED TO BE REMITTED BY THE ASSESSEE TO ATI TECHNOLOGIES, CANADA ON ACCOUNT OF ITS SHARE OF C OST OF SOFTWARE LICENCES/APPLICATIONS IS CONCERNED, THE ASSESSEE HAS RAISED MAINLY THREE ISSUES. THE FIRST ISSUE AS RAISED IN GROUND NO.11 IS THAT THE AMOUNT PAID TO ATI TECHNOLOGIES, CANADA FOR I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 57 SOFTWARE LICENCES/APPLICATIONS IS NOT IN THE NATURE OF ROYALT Y AS WHAT THE ASSESSEE GOT WAS ONLY THE USE OR RIGHT TO USE COPY RIGHTED ARTICLE AND NOT THE USE OR RIGHT TO USE THE COPY RIGHT. THE SECOND ISSUE AS RAISED BY THE ASSESSEE IN GROUND NOS.12 TO 14 IS THAT THE AUTHORITIES BELOW ARE NOT JUSTIFIED IN TREATING ONLY 50% OF THE AMOUNT REMITTED TO ATI TECHNOLOGIES, CANADA TOWARDS SOFTWARE LICENSES APPLICATIONS AS REASONABLE AND TREATING THE BALANCE 50% AS EXCESSIVE OR UNREASONABLE, WHICH IS CHARGEABLE TO TAX IN THE HANDS OF ATI TECHNOLOGIES, CANADA AS OTHER INCOME . THE THIRD ISSUE THAT IS RAISED BY THE ASSESSEE IN GROUND NO.15 IS THAT THE AMOUNT IN QUESTION BEING CROSS CHARGED BY ATI TECHNOLOGIES, CANADA ON ACCOUNT OF SHARE OF SOFTWARE APPLICATIONS/LINCENCES ALLOCATED TO THE ASSESSEE ON COST TO COST BASIS, WITHO UT ANY ELEMENT OF PROFIT EMBEDDED THEREIN, THE SAME IS NOT CHARGEABLE TO TAX IN THE HANDS OF ATI TECHNOLOGIES, CANADA AND THERE IS NO QUESTION OF DEDUCTION OF TAX AT SOURCE FROM THE SAID AMOUNT. 4 7 . AS REGARDS THE ISSUE RAISED IN GROUND NO.11 REL A T ING TO THE TREATMENT GIVEN BY THE LEARNED CIT(A) TO THE 50% OF THE AMOUNT REIMBURSED BY THE ASSESSEE COMPANY TO ATI TECHNOLOGIES, CANADA TOWARDS SOFTWARE LICENCE FEE AS ROYALTY CHARGEABLE TO TAX IN INDIA AS PER ARTICLE 12 OF THE INDIA CANADA DTAA , T HE LEARN ED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CROSS CHARGES MADE TOWARDS REIMBURSEMENT OF SOFTWARE LICENCES BY THE ASSESSEE COMPANY TO ATI TECHNOLOGIES, CANADA WERE ON COST TO COST BASIS AND THER E BEING NO INCOME ELEMENT EMBEDDED THEREIN, THE SAME CANNOT CONSTITUTE INCOME IN THE HANDS OF THE ATI TECHNOLOGIES, CANADA . WITHOUT PREJU D I C E TO THIS CONTENTION AND AS AN ALTERN A TIVE, H E CON T EN D ED THAT THE PAY ME N T S MADE BY T HE ASSESSEE TO ATI TECHNOLOGIES, CANADA FOR SOFTWARE LICEN CE S W E RE ONLY TOWARDS RIGHT TO U SE COPY RIGHTED ARTICLE. HE EXPLAINED THAT ATI TECHNOLOGIES, I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 58 CANADA ONLY PROCURED SOFTWARE LICEN CE S FROM THIRD PART I ES FOR THE GROUP AS A WHOLE AND LATER CR O SS CHARGED THE SAME TO DIFFERENT GROUPS AND E NTITIES INCLUDING THE ASSESSEE COMPA N Y FOR SUCH US A GE OF LICENC E S BY EACH OF TH E GROUP ENTITIES. HE CON T E ND ED THAT ATI TECHNOLOGIES, CANADA THUS DID NOT HAVE ANY COPY RIGHT TO SUCH LICEN C ES AND IT, THER EF ORE, WAS NO T IN A POSITION TO CHARGE FOR THE USE OF COPY RIGHT. HE CONTENDED T H A T THE PAYM E N T MADE BY THE ASSESSEE COMPANY TO ATI TECHNOLOGIES, CANADA TOWARDS CROSS CHAR G ES FOR SOFTWARE LIC E N C ES THUS CANNO T B E CON S I DE RED AS ROYALTY BOTH UNDER THE P RO VIS I ON S OF THE ACT AS WELL AS I NDIA CANADA DTAA. HE INVITED OU R A TTENTION TO THE DEFINITION OF THE TER M ROYALTY AS GIVEN IN A RTI CLE 12(3) OF THE IND IA CANADA DTAA AND SUBMI T TED THAT THE SAID DEFINITION COVERS W ITHIN ITS AMBIT ONLY THE PAYM E N T S FOR USE OR RIGHT TO USE COPY RIGHT AND DOES NOT COVER USE OR RIGHT TO USE THE COPY RIGHTED ARTICLE. 48. THE L EARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT THE ASSESSEE IN THE PRESENT CASE AT THE MOST CAN BE CONSIDERED TO HAVE MERE USER RIGHT IN THE COPY RIGHTED SOFTWARE AND NO T THE RIGHT OF USE OF COPY RIGHT. RELYING ON THE DECISION OF THE COORDINATE BENCH OF THIS T R IBUNAL IN TH E CA S E OF ADIT(INTERNATIONAL TAXATION) V/S. M/S. BATRONICS INDIA LTD. (ITA NO.918/HYD/2010), HE CONTENDED THAT PAYMENT IN RESPECT OF RIGHTS WHICH ENABL E THE EFFECTIVE OP E RATION OF THE PROGRAMME BY THE USER, SHO U LD BE DEALT WITH AS BU S IN E SS INCOME IN ACCORD A N C E WI T H ARTICLE 7 OF THE DTAA. HE CONTENDED THAT THE PAYMEN T S MADE BY THE ASSESSEE, EVEN IF THE SAME ARE SOUGHT TO BE FOR USE O F A COPY RIGHTED SOFTWARE, CANNOT B E CONSIDERED AS ROYALTY UNDER I NDIA CANADA DATAA AND THE SAME WILL CON STITUTE BU S IN E SS PROFIT OF ATI TECHNOLOGIES, CANADA AS PER ARTICLE 7 OF THE DTAA HE CONTENDED THAT SIN C E THERE WAS NO PERMANENT ESTABLISHMENT OF ATI TECHNOLOGIES, CANADA IN INDIA DURING THE I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 59 RELEVANT Y E AR S , THE BU S IN E SS PROFIT WAS NO T TAXABLE IN THE HANDS OF THE SAID COMPANY IN INDIA, AND CONSEQUENTLY, TH E RE WAS NO OBLIGATION ON THE ASSESSEE COMPANY TO DEDUCT TAX AT SOU R CE FR O M TH E PAYM E N T S MADE TO THE SAID COMPANY, WHI C H CONSTI T UTED ITS BU S IN E SS IN C OM E . HE CLARIFIED THAT ALTHOUGH THE DEFINITION OF THE TERM ROYALTY UNDER THE DOMESTIC ACT HAS BEEN ENLARGED BY THE RETROSPECTIVE AMENDMENT, THE SAID AMENDMENT HAS NO APPLICATION IN TH E ASSESSEE S CASE , IN THE ABSENCE OF ANY CHANGE IN THE DEFINITION OF ROYALTY GIVEN IN INDIA CANADA DTAA . HE CON TE NDED THAT A P ERSON WHO DID NO T DEDUCT TAX B A SED ON TH E L A W AS EXISTED AT THE TIM E O F TRANSAC T ION, IN ANY CASE, CANNO T B E EXPECTED TO DEDUCT TAX BASED ON THE LAW AMENDED RETROSPE C TIVELY. HE ALSO CON TE NDED T H A T THE LAW CANNOT POSSIBL Y CO M PEL A PERSON TO DO SOMETHING WHI CH IS IMPO S SIBLE TO PERFORM. 49 . AS REGARDS THE COMMON ISSUE INVOLVED IN GROUND N O.S 12 TO 14 RELATIN G TO TH E ACTION OF TH E LEARNED CIT(A) IN ACCEPTING ONLY 50% OF THE CR O SS CHARGES MADE TOWAR D S SOFTWARE LICENSES AS REASONABLE AND TREATING THE BALANC E 50% AS EXCESSIVE AND UN RE ASONABLE, WHICH IS LIABLE TO BE T A X ED IN THE HANDS OF ATI TECHNOLOGIES, CANADA AS OTHER INCOME IN INDIA, THE LEARNED COUN S EL FOR THE ASSESSEE INVITED OUR ATTENTION TO THE Y E AR - WISE DETAILS OF SOFTWARE LIC E N C ES PROCURED AND C RO SS CHARGES MADE TO ATI TECHNOLOGIES, CANADA PLACED AT PAGES 875 TO 925 OF TH E PAPER - B OOK. HE CONTENDED THAT THESE DETAILS ALOGNWITH S AMPLE COPIES OF THE SOFTWARE LICENCE AGREEMENTS ENTERED INTO BY ATI TECHNOLOGIES, CANADA ON ITS BEHALF AND ON BEHALF OF TH E E NTIRE GROUP AS A WHOLE WERE SUFFICIENT TO ESTABLISH THE GENUINENESS OF THE CROSS CHARGES PAID BY THE ASSESSEE TOWARDS SOFTWARE LICENSE. HE CONTENDED THAT RELYING ON THE DETAILS AND DOCUMENTS FILED BY THE ASSESSEE AS ADDITIONAL EVIDENCE BEFORE THE LEARNED CIT(A), THE ASSESSING OFFICER I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 60 ALSO ACCEPTED IN THE REMAND REPORT THAT THE CROSS CHARGES FOR THE SOFTWARE LICENCE MADE BY THE PARENT COMPANY TO THE ASSESSEE COMPANY W ERE JUSTIFIED AND EVEN THE LEARNED CIT(A) CONCURRED WITH THE SAID FINDING. HE CONTENDED TH AT WHEN THE GENUINENESS OF THE CROSS CHARES PAID BY THE ASSESSEE TO ITS PARENT COMPANY ON ACCOUNT OF SOFTWARE LICENCES WAS ACC E PTED BY TH E ASSESSING OFFICER AS WELL AS THE LEARNED CIT(A), THERE WAS NO JU S TIFICATION TO STILL HOLD 50% OF SUCH CHAR GE S AS UNRE ASONABLE AND E X CESSIVE, ESPECIALLY D URING THE COU R SE OF PROCEEDINGS UNDER S.201(1) OF THE ACT, WH E RE THE SCOPE IS ONLY TO DETERMINE THE TDS IMPLICATIONS. HE CONTENDED TH A T UNTENAB ILITY OF THI S AC T ION BECOMES EVIDENT ALSO IN TH E LI G H T O F THE FACT THAT THE A SSESSEE COMPANY WAS WORKING ON COST PLUS MET H OD AND AS THE C R OSS CHARGES PAID WERE SUBSEQUENTLY RECOVERED ALON G WITH MARK UP FROM THE P A RENT COMPANY, IT CLEARLY SHOWS THAT THER E WAS NO REASON OR UL TE RIOR MOTIVE FOR ATI TECHNOLOGIES, CANADA TO CROSS CHARGE MORE THAN THE REASONABLE AMOUNT TOWARDS SOFTWARE LICENCES. HE CON T ENDED T HAT EVEN THE RELIANCE PLACED BY THE LEARNED CIT(A) ON A R TICLE 12( 8 ) OF INDIA CANADA DTAA TO HOL D THE ALLEGED E X CESS P A YM E N T O F ROYALTY AS INCOME FROM OTHER SOU R CES IS MISPLACED, A S THE OECD C OMM ENTARY ON M O DE L TAX CONVENTION HAS CLEARLY CLARIFIED THAT ARTICLE 12(8) PERMITS ONLY THE ADJU S TMENT OF THE AMOUNT OF ROYALTY AND NOT THE RECLASSIFI CA TION OF ROYALTY IN SUCH A MANNER AS TO GIVE IT A DIFFERENT CHARACTER. HE CONTENDED THAT THE ALL E GED EXCESS AMOUNT OF ROYALTY THEREFOR E , CANNOT BE RE - CHARACTERISED AS INCOME FROM OTHER SOU RC ES AND AT BEST IT CAN ONLY BE SUBJECTED TO WITHHOLDING TAX AS ROYALTY AS PER THE DOMESTIC LAW IN TERMS OF S.115A OF THE ACT AT THE RATE OF 10%. 50 . A S REGARDS THE ISSUE RAISED IN G R OUN D NO.15 RELATING TO T H E ASSESSEE S CLAIM THAT THE REIMBURSEMENT OF SOFTWARE LICENCE EXPENSES BEING ON COST TO COST BASIS, WITHOUT ANY ELEMENT OF PROFIT I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 61 AND CONSEQUENTLY THERE BEING NO INCOME CHAR G EABLE TO TAX IN THE HAN DS OF ATI TECHNOLOGIES, CANADA IN INDIA , THERE CAN BE NO QUESTION OF DEDUCTION OF TAX AT SOU R CE UN D ER S.195, THE LEARNED COUN SE L FOR THE ASSESSEE REITERATED BEFORE US THE SUBMI S SION S MADE BY HIM WHILE ARGUING THE SIMILAR ISSUE INVOLVED IN G R OUNDS NO.3 TO 9 IN RESPECT OF PAYMENT CLAIMED TO BE MADE ON ACCOUNT O F ENGINEERING SE RV ICES AVAILED THROUGH ATI TECHNOLOGIES, CANADA FROM SOCTRONICS INDIA PRIVATE LIMITED. 5 1 . THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUBMITTED THAT THERE WAS NO BAS IS OF ALLOCATION OF SUCH EXPENSE GIVEN OR EXPLAINED BY THE ASSESSEE. HE CONTENDED THAT IN THE ABSENCE OF BASIS OF ALLOCATION AS WELL AS COPIES OF ALL THE RELEVANT AGREEMENTS TO SHOW PURCHASE OF SOFTWARE LICENCES BY ATI TECHNOLOGIES, CANADA, THE GENUINENESS OF THE AMOUNT CLAIMED TO BE REMITTED BY THE ASSESSEE ON ACCOUNT OF ITS SHARE OF COST INCURRED BY ATI TECHNOLOGIES, CANADA ON PURCHASE OF SOFTWARE LICENSES WAS RIGHTLY DOUBTED BY THE ASSESSING OFFICER AS WELL AS THE LEARNED CIT(A) TO THE EXTENT OF 50%. HE ALSO CONTENDED THAT THE NATURE OF SOFTWARE PROVIDED BY ATI TECHNOLOGIES, CANADA AND THE SCOPE OF USE OF SUCH SOFTWARE BY THE ASSESSEE COMPANY CANNOT BE ASCERTAINED IN THE ABSENCE OF ANY AGREEMENT BETWEEN THE ASSESSEE AND THE ATI TECHNOLOGIES, CANADA WHICH IS NECESSARY TO EVALUATE THE ARGUMENT OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT IT WAS A CASE OF USE OR RIGHT TO USE OF COPY RIGHTED ARTICLE AND NOT OF THE COPY RIGHT AS SUCH. HE CONTENDED THAT IF IT IS A CASE OF COST INITIALLY PAID BY THE ATI TECH NOLOGIES, CANADA FOR PURCHASE SOFTWARE AND REIMBURSEMENT OF THE SAME SUBSEQUENTLY BY THE ASSESSEE COMPANY AS CLAIMED, IT CLEARLY AMOUNTS TO PURCHASE OF THE SOFTWARE BY THE ASSESSEE COMPANY, WHICH GENERALLY INVOLVES USE OR RIGHT TO USE THE COPY RIGHT AS WE LL. I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 62 5 2 . AS REGARDS THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THERE IS NO JUSTIFICATION IN THE ACTION OF THE AUTHORITIES BELOW IN ACCEPTING ITS CLAIM FOR SOFTWARE EXPENSES ONLY TO THE EXTENT OF 50% AND TREATING THE BALANCE 50% AS EXT RA PAYMENT CHARGEABLE TO TAX AS INCOME FROM OTHER SOURCES AND THAT SUCH RECHARACTERISATION IS NOT PERMISSIBLE, THE LEARNED DEPARTMENTAL REPRESENTATIVE CONTENDED THAT THE ENTIRE AMOUNT WAS CLAIMED TO BE REMITTED BY THE ASSESSEE ON ACCOUNT OF REIMBURSEMENT OR PAYMENT OF ITS SHARE OF COST OF SOFTWARE EXPENSES, WITHOUT MAKING ANY CLASSIFICATION. ACCORDING TO HIM, IT WAS THEREFORE, OPEN FOR THE REVENUE AUTHORITIES TO DECIDE THE NATURE OF SUCH PAYMENT AND IT IS NOT A CASE OF RECHARACTERISATION OR RECLASSIFICATIO N OF INCOME, AS ALLEGED BY THE LEARNED COUNSEL FOR THE ASSESSEE. 5 3 . AS REGARDS THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE ENTIRE AMOUNT IN QUESTION PAID TO ATI TECHNOLOGIES, CANADA HAVING BEEN INCLUDED IN THE COST AND THE SAME HAVI NG BEEN RECOVERED SUBSEQUENTLY FROM ATI TECHNOLOGIES, CANADA ALONGWITH MARK UP, THERE IS NO CASE OF ANY TAX PLANNING OR TAX AVOIDANCE AS ALLEGED BY THE AUTHORITIES BELOW, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT BY MAKING THIS ENTIRE ARRANGE MENT, SOCTRONICS INDIA PRIVATE LIMITED GOT FULL BENEFIT OF DEDUCTION AVAILABLE UNDER S.10A AND THIS VITAL ASPECT NEEDS TO BE TAKEN INTO CONSIDERATION WHILE DECIDING THE ASPECT OF THE TAX BENEFIT OR TAX AVOIDANCE MANAGED BY THE ENTIRE GROUP AS A WHOLE. 5 4 . WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS REGARDS THE CLAIM OF THE ASSESSEE THAT THE AMOUNT IN QUESTION IS CROSS CHARGED BY ATI TECHNOLOGIES, CANADA ON ACCOUNT OF SOFTWARE APPLICATIONS/LICENCES I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 63 O N COST TO COST BASIS, WE FIND FROM THE DETAILS AND DOCUMENTS SUBMITTED BY THE ASSESSEE THAT THERE IS NOTHING TO SUPPORT AND SUBSTANTIATE THE STAND OF THE ASSESSEE. THESE DETAILS ARE PLACED AT PAGES 875 TO 925 OF THE ASSESSEES PAPER - BOOK AND A PERUSAL OF T HE SAME SHOWS THAT EVEN THE BASIS OF COST CLAIMED TO BE ALLOCATED BY ATI TECHNOLOGIES, CANADA TO THE ASSESSEE COMPANY IS NOT GIVEN ANYWHERE. TWO AGREEMENTS FOR PURCHASE OF SOFTWARE LICENCES BY ATI TECHNOLOGIES, CANADA ARE FILED BY THE ASSESSEE, WHICH MEREL Y SHOW THE TERMS AND CONDITIONS ON WHICH SOME OF THE SOFTWARE LICENSES WERE ACQUIRED BY ATI TECHNOLOGIES, CANADA. IT IS HOWEVER, NOT CLEAR AS TO ON WHAT TERMS, THE SOFTWARE LICENCES ACQUIRED BY ATI TECHNOLOGIES, CANADA WERE MADE AVAILABLE FOR THE USE OF O THER GROUP COMPANIES, INCLUDING THE ASSESSEE COMPANY. IN THE ABSENCE OF THESE DETAILS AS WELL AS THE BASIS OF ALLOCATION OF COST OF SOFTWARE APPLICATIONS/LICENCES, WE FIND IT DIFFICULT TO ACCEPT THE CONTENTION OF THE ASSESSEE THAT THE AMOUNT IN QUESTION PAID BY IT TO ATI TECHNOLOGIES, CANADA TOWARDS ITS SHARE OF SOFTWARE APPLICATIONS/LICENCES ON COST TO COST BASIS, WITHOUT INVOLVEMENT OF ANY ELEMENT OF PROFIT, SO AS TO SAY THAT THE AMOUNT SO REMITTED IS NOT CHARGEABLE TO TAX IN THE HANDS OF ATI TECHNOLOG IES, CANADA IN INDIA, BEING MERELY IN THE NATURE OF REIMBURSEMENT OF ACTUAL EXPENSES INCURRED BY THE SAID COMPANY, WITHOUT ANY PROFIT ELEMENT. WE THEREFORE, DISMISS GROUND NO.15 OF THE ASSESSEES APPEAL. 5 5 . AS REGARDS THE ISSUE INVOLVED IN GROUND NOS. 12 TO14 RELATING TO THE ACTION OF THE AUTHORITIES BELOW IN TREATING ONLY 50% OF THE AMOUNT CLAIMED TO BE REMITTED BY THE ASSESSEE TO ATI TECHNOLOGIES, CANADA ON ACCOUNT OF COST OF SOFTWARE LICENCES/APPLICATIONS AS REASONABLE, IT IS OBSERVED THAT THE ENTIR E CLAIM OF THE ASSESSEE ON THIS ISSUE WAS INITIALLY DISALLOWED BY THE I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 64 ASSESSING OFFICER IN THE ORDER PASSED UNDER S.201(1)/201(1A) AND THE FULL AMOUNT WAS TREATED BY HIM AS EXTRA PROFIT OR CASH PAID BY THE ASSESSEE TO ATI TECHNOLOGIES, CANADA IN THE A BSENCE OF RELEVANT DETAILS AND DOCUMENTS FILED BY THE ASSESSEE. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE THE LEARNED CIT(A), THE ASSESSEE, HOWEVER, FILED SUCH DETAILS AND DOCUMENTS AND ON VERIFICATION OF THE SAME, THE ASSESSING OFFICER FOUND THE CLAIM OF THE ASSESSEE ON THIS ISSUE TO BE GENUINE, BUT ACCEPTED THE AMOUNT PAID BY THE ASSESSEE TO ATI TECHNOLOGIES, CANADA ONLY TO THE EXTENT OF 50% AS REASONABLE, WITH WHICH THE LEARNED CIT(A) ALSO AGREED. IN OUR OPINION, WHEN THE RELEVANT DETAILS WERE FILED BY THE ASSESSEE SHOWING THE AMOUNTS PAID TO ATI TECHNOLOGIES, CANADA FOR USE OF SPECIFIC SOFTWARE LICENCES AND SOME OF THE SOFTWARE LICENCE AGREEMENTS WERE ALSO FILED BY THE ASSESSEE SHOWING THE PURCHASE OF SOFTWARE LICENSES BY ATI TECHNOLOGIES, CA NADA, AS SAMPLE COPIES, THERE WAS NO REASON FOR THE AUTHORITIES BELOW TO ACCEPT ONLY 50% OF THE CLAIM OF THE ASSESSEE OF HAVING PAID THE AMOUNT IN QUESTION FOR USE OF SOFTWARE LICENSES AS REASONABLE AND TREATING THE BALANCE 50% AS PAYMENT OF EXTRA PROFIT OR CASH BY THE ASSESSEE COMPANY TO ATI TECHNOLOGIES, CANADA. AS RIGHTLY SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE, WHEN THE GENUINENESS OF THE ASSESSEES CLAIM OF HAVING PAID THE AMOUNT IN QUESTION TO ATI TECHNOLOGIES, CANADA FOR USE OF SOFTWARE LICENSES WAS ACCEPTED BY THE ASSESSING OFFICER AS WELL AS THE LEARNED CIT(A), THERE WAS NO REASON FOR THEM TO ACCEPT ONLY 50% OF THE AMOUNT PAID AS REASONABLE AND TREATING THE BALANCE AMOUNT AS UNREASONABLE OR EXCESSIVE AND THAT TOO WITHOUT GIVING ANY BAS IS TO DO SO. 5 6 . AS ALREADY NOTED BY US, THE ENTIRE AMOUNT IN QUESTION CLAIMED TO BE PAID BY THE ASSESSEE TO ATI TECHNOLOGIES, CANADA FOR I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 65 USE OF SOFTWARE LICENCES WAS INCLUDED IN ITS COST AND THE SAME WAS SUBSEQUENTLY RECOVERED FROM ATI TECHNOLOGIES, CANADA, ALONGWITH MARK UP, WHICH CLEARLY SHOWS THAT THERE WAS NO ULTERIOR MOTIVE ON THE PART OF THE ASSESSEE TO PAY ANY EXTRA PROFIT OR CASH TO ATI TECHNOLOGIES, CANADA IN THE GUISE OF SOFTWARE APPLICATION COST, AS ALLEGED BY THE ASSESSING OFFICER. HAVIN G REGARD TO ALL THESE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THE AUTHORITIES BELOW ARE NOT JUSTIFIED IN TREATING 50% OF THE SOFTWARE LICENCE COST PAID BY THE ASSESSEE COMPANY TO ATI TECHNOLOGIES, CANADA AS EXCESSIVE AND UNREASONABLE AND REVERSING THEIR DECISION ON THIS ISSUE, WE ACCEPT THE CLAIM OF THE ASSESSEE OF HAVING PAID THE ENTIRE AMOUNT IN QUESTION TO ATI TECHNOLOGIES, CANADA FOR USE OF SOFTWARE LICENCES/APPLICATIONS. GROUNDS NO.12 TO 14 OF THE ASSESSEES APPEAL ARE ACCORDINGL Y ALLOWED. 57 . HAVING HELD THAT THE AMOUNT IN QUESTION PAID BY THE ASSESSEE TO ATI TECHNOLOGIES, CANADA WAS NOT MERELY REIMBURSEMENT OF SOFTWARE LICENCE EXPENSES ALLOCATED BY THE ATI TECHNOLOGIES, CANADA ON COST TO COST BASIS AND THAT THE SAME ENTIREL Y REPRESENTED THE AMOUNT REMITTED BY THE ASSESSEE TO ATI TECHNOLOGIES, CANADA FOR USE OF SOFTWARE LICENSE/APPLICATION, THE NEXT ISSUE THAT ARISES FOR CONSIDERATION, AS RAISED BY THE ASSESSEE IN GROUND NO.11, IS WHETHER THE AMOUNT IS IN THE NATURE OF ROY ALTY CHARGEABLE TO TAX IN THE HANDS OF ATI TECHNOLOGIES, CANADA IN INDIA. IN THIS REGARD, THE LEARNED COUNSEL FOR THE ASSESSEE HAS RAISED A CONTENTION BEFORE US THAT THE AMOUNT IN QUESTION HAVING BEEN PAID BY THE ASSESSEE TO ATI TECHNOLOGIES, CANADA FOR USE OR RIGHT TO USE A COPY RIGHTED ARTICLE AND NOT THE USE OR RIGHT TO USE THE COPY RIGHT IN THE RELEVANT SOFTWARE, THE SAME IS NOT IN THE NATURE OF ROYALTY AS PER ARTICLE 12 OF THE INDIA - CANADA DTAA. IN THIS REGARD, IT IS OBSERVED THAT THE AMOUNT IN QUES TION WAS PAID BY THE I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 66 ASSESSEE TO THE ATI TECHNOLOGIES, CANADA DURING THE PREVIOUS YEARS RELEVANT TO ASSESSMENT YEARS 2007 - 08 AND 2008 - 09 FOR USE OF TOTAL 16 SOFTWARE LICENSES/APPLICATIONS. A PERUSAL OF THE DOCUMENTS FILED BY THE ASSESSEE IN THIS REGARD SH OWS THAT ONLY TWO AGREEMENTS ARE PLACED ON RECORD BY THE ASSESSEE FOR PURCHASE OF SOFTWARE LICENSES BY ATI TECHNOLOGIES, CANADA AS SAMPLE AGREEMENTS. THE AGREEMENTS FOR PURCHASE OF OTHER 14 SOFTWARE LICENCES BY ATI TECHNOLOGIES, CANADA THUS ARE NOT FILED BY THE ASSESSEE. THERE IS ALSO NOTHING EITHER IN THE REMAND REPORT OF THE ASSESSING OFFICER OR IN THE IMPUGNED ORDER OF THE LEARNED CIT(A) TO SHOW THAT THE TERMS OF THE TWO AGREEMENTS FILED, HAVE BEEN EXAMINED BY THEM TO FIND OUT THE EXACT RIGHTS ACQUIRED BY THE ATI TECHNOLOGIES, CANADA, IN THE CASE THOSE TWO SOFTWARE LICENSES. IT IS ALSO NOT CLEAR FROM THE DETAILS AND DOCUMENTS PLACED ON RECORD BY THE ASSESSEE AS TO WHAT ARE THE RIGHTS IN THE SOFTWARE LICENCES THAT HAVE BEEN TRANSFERRED BY ATI TECHNOL OGIES, CANADA TO THE ASSESSEE COMPANY. IN THE ABSENCE OF THESE DETAILS AND DUE TO LACK OF PROPER EXAMINATION/VERIFICATION BY THE AUTHORITIES BELOW, WE ARE OF THE VIEW THAT IT IS NOT POSSIBLE TO ASCERTAIN THE CLAIM OF THE ASSESSEE THAT THE AMOUNT IN QUESTI ON WAS PAID BY IT TO ATI TECHNOLOGIES, CANADA ONLY FOR USE OR RIGHT TO USE A COPY RIGHTED ARTICLE, I.E. SOFTWARE AND NOT FOR THE USE OR RIGHT TO USE THE COPY RIGHT IN THE SAID SOFTWARE, AND IT WAS THUS NOT IN THE NATURE OF ROYALTY WITHIN THE MEANING OF ARTICLE 12 OF THE INDIA - CANADA DTAA. IN THIS VIEW OF THE MATTER, WE CONSIDER IT JUST AND PROPER TO RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING THE SAME AFRESH AFTER VERIFYING/EXAMINING ALL THE RELEVANT AGREEMENTS AND OTHER DOCUM ENTARY EVIDENCE IN ACCORDANCE WITH LAW. NEEDLESS TO OBSERVE THAT THE ASSESSING OFFICER SHALL AFFORD SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE WHO WILL BE AT LIBERTY TO PLACE ON RECORD BEFORE THE ASSESSING OFFICER FRESH DOCUMENTARY EVIDENCE, AS MAY I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 67 BE REQUIRED TO SUPPORT ITS CLAIM ON THIS ISSUE. GROUND NO.11 OF THE ASSESSEES APPEAL IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 58 . THE ISSUE R A ISED IN GR O UN D N O.16 R E LATING TO THE WRONG QUANTIFICATION OF INTEREST BY THE ASSESS ING OFFICER UNDER S.201(1) HAS NOT BEEN PRES S ED BY THE LEARNED COUNSEL FOR THE ASSESSEE AT THE TIME O F H EA RING BEFORE US. THE SAID GROUND IS ACCORDINGLY DISMI S SED. 59 . AS REGARDS THE ALTERNATIVE CLAIM AS RAISED IN GROUND NO.17 TO TREAT THE 50% OF THE C ROSS CHARGES PAID TO ATI TECHNOLOGIES, CANADA ON ACCOUNT OF SOFTWARE LICENSE, HELD AS UNREASONABLE AND EXCESSIVE, TO BE DIVIDEND INCOME UNDER S.2(22)(A) OF THE ACT, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT EVEN IF SUCH ALLEGED UNREASONABLE OR EXCESSIVE PAYMENT IS CONSIDERED TO CONSTITUTE FRESH CASH OR INCOME PAID BY THE ASSESSEE COMPANY TO ATI TECHNOLOGIES, CANADA, THE SAME MAY BE TREATED AS DIVIDEND PAID TO ATI TECHNOLOGIES, CANADA, WHICH IS THE 100% SHARE HOLDER OF THE ASSESSEE COMPANY. HE INVITED OUR ATTENTION TO S.2(22)(A) OF THE ACT AND CONTENDED THAT THERE BEING SUFFICIENT ACCUMULATED PROFIT AVAILABLE WITH THE ASSESSEE COMPANY AT THE RELEVANT POINTS OF TIME, THE RELEASE OF THE FRESH CASH BY THE ASSESSEE COMPANY TO ATI TECHNOLOGIES, CANADA AS ALLEGED BY THE LEARNED CIT(A) MAY BE CLASSIFIED AS DIVIDEND UNDER S.2(22)(A) OF THE ACT. 6 0 . THE L EARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE REVENUE AUTHORITIES ON THIS ISSUE. 6 1 . WE HAVE HEARD THE A RGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IN VIEW OF OUR I TA NO. 692 - 695/H YD/20 14 M/S. AMD RESEARCH & DEVELOPMENT CE NTER INDIA PRIVATE LIMITED, HYDERABAD 68 DECISION RENDERED ON GROUNDS NO.12 TO 14 TREATING THE ENTIRE AMOUNT PAID BY THE ASSESSEE ON ACCOUNT OF SOFTWARE LICENCES TO ATI TECHNOLOGIES, CANADA AS REASONABLE, T HE ALTERNATIVE CLAIM OF THE ASSESSEE, AS RAISED IN GROUND NO.17 TO TR E AT 50% O F TH E CROSS CHARGES PAID BY ATI TECHNOLOGIES, CANADA ON ACCOUNT OF SOFTWARE LICEN C ES AS DIV ID EN D UNDER S.2(22 )(A ), HAS BECOME INFRUCTUOU S . THI S GROUN D IS ACCORD I NGLY REJECTED. 6 2 . IN THE RESULT, ALL THE FOUR APPEALS ARE PARTLY ALLOWED . ORDER PRONOUNCED IN THE COURT ON 22 ND OCTOBER, 2014 SD/ - SD/ - ( SAKTIJIT DEY ) ( P.M.JAGTAP ) JUDICIAL MEMBER ACCOUNTANT MEMBER DT/ - 22 ND OCTOBER, 2014 COPY FORWARDED TO: 1. M/S. AMD RESEARCH & DEVELOPMENT C ENTER INDIA PRIVATE LIMITED, 8 TH FLOOR, BUILDING NO.11, RAHEJA IT PARK MINDSPACE, SURVEY NO.64, APIIC SOFTWARE LAY - OUT, MADHAPUR, HYDERABAD 500 081. 2 . ASSTT. DIRECTOR OF INCOME - TAX(INTERNATIONAL TAXATION) - I, HYDERABAD 3. 4. COMMISSIONER OF INC OME - TAX(APPEALS) V , HYDERABAD ADDL. DIRECTOR OF INCOME - TAX (INTERNATIONAL TAXATION) , HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S